Ever wondered if coffee meetings are tax deductible?

Anyone who knows me, knows that I’m a big coffee freak. I have about 3 or 4 cappuccinos every day. My favourite coffee shop is Bellissimo. You’ve got to try it. It’s around the corner from Inspire and there’s also one around one from my house. I get it everywhere.

I was down there meeting with a prospective client the other day. I shouted the coffees, of course. I went to pay for the coffees and the kind girl behind the desk asked me, “Would you like a tax invoice?” It made me think, why would I need a tax invoice? Are coffee meetings tax deductible? So I went back to Inspire and asked the accountants this very question:

“Are coffee meetings tax deductible? What about other meetings that include food, are they tax deductible too?”

 

Here’s what they told me:

You can claim meals while you’re traveling overnight.

If you’re an employee going off to a conference, and you’re away from your usual home, then you can claim that meal.

There’s guidance from the ATO, but budget for about a hundred dollars per night. That means you might be able to go to the coffee club and grab a Bolognese, but I wouldn’t really be going to Jamie’s Italian and getting a full course meal.

You can claim meals supplies as a working lunch.

Say you got a team, this happens quite regularly during tax time, we’re really busy and we tend to work late. We go out and buy Domino’s. That’s fine because that’s all part of keeping the progress going, with regards to our work. If it’s related to our team being able to continue working, then that’s okay.

You can claim meals supplied from an in-house canteen or café.

I know this really cool engineering business in West End, who have a chef in-house and they supply meals to their team, throughout the day. What a great place to work? These items would be tax deductible and exempt of FBT.

You can claim snacks on the road, while you’re going as a business owner.

As a business owner, you might be out and about, meeting with clients throughout the day. Grabbing a coffee and a muffin, here and there, while you’re doing your day-to-day work is A-okay. Again, you’ve got to be reasonable. The ATO isn’t stupid. If you’re putting through 7-course at a gas station lunches, instead of a coffee here and a muffin, it’s probably not going to go down so well.

So there you have it! The 4 rules, with regards to how to make coffee meetings and meals tax deductible.

 

To conclude, My advice to you, as a fellow business owner is to:

  1. Focus on whatever investment you make into your business, whether it’s a coffee meeting here or whether it’s a Facebook ad there.

2. Ask yourself the question, ‘What is the return on investment you’re going to get from that?’ I always try to aim for 5 to 20 times our way. This is the focus point for you as a business owner, if it turns out to be tax deductible as a result, well bonus. If it isn’t, move on. There’s no point in trying to spend an hour trying to make a 20 cent tax savings on an orange mocha Frappuccino that you had on the weekend than risk that concern and anxiety that might come from being audited.

3. And most importantly, focus on the biggest bang for your buck!

 

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Business Structuring Made Easy! Part 5: Family Trusts

A trust is a structure wherein a Trustee (either an individual or company) carries on the operations of the Trust on behalf of the beneficiaries. The actions of the Trustee are governed by the Trust Deed, which details the rights and obligations of all parties. Trusts are a common structure choice for family businesses as it enables the various family members to become beneficiaries of the Trust that is operating the business. While the trust is not a separate legal entity it is a separate entity for tax purposes. The trustee must apply for a Tax File Number (TFN) for the trust and lodge an annual income tax return.

If a company trustee is used, the trust offers all the same asset protection benefits as using a company structure, along with the additional benefits of using a trust. A trust that has individuals acting as trustees exposes the trustees (the individual, or individuals) to same levels of business risk as a sole trader.

Broadly speaking there are two common types of trusts that you will encounter when making your business structuring decision: Fixed Trusts and Discretionary Trusts.

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Discretionary Trusts

A Discretionary Trust is the most flexible form of business structure for a family trust. No single beneficiary has a fixed interest in the trust’s property or the trust’s income. The trustee has complete discretion in the distribution of funds to each beneficiary. This makes the Discretionary Trust (with a corporate trustee) a strong and flexible option for a family business. The family members are protected from business risk and the trustee has the discretion to distribute the income in the most effective way possible.

It is important to remember that all of the benefits offered by a discretionary trust for a family business make it a poor choice for businesses where more than one family or group is involved, as neither group of beneficiaries retains a fixed entitlement to property or income.

Advantages of a Discretionary Trust:

  • Flexibility with income and capital distribution;
  • Broader Tax planning opportunities;
  • Access to Small Business CGT concessions;
  • 50% 12 month CGT discount;
  • Asset protection (if a corporate trustee is used)
  • Can pay salaries and wages as well as superannuation;
  • Less regulatory requirements than trading as a company.

Disadvantages of a Discretionary Trust:

  • Distributions must be in accordance with the Trust Deed;
  • Risk of resettlement if changes are made to trust members or trust property without giving consideration to the rules outlined in the trust deed;
  • Losses cannot be distributed;
  • More of an investment to establish and maintain when compared to Sole traders or partnerships;
  • Trustees can be personally liable for some debts of the trust (if individual trustees are used).

Fixed (Unit) Trusts

Fixed (or sometimes called “Unit”) Trusts are recommended when more than one family or group is involved in the business operation. The interest in the trust is divided into units, similar to shares in a company. The Trustee distributes income to the beneficiaries in accordance with their respective holdings in the trust. This is the key point of difference between Fixed and Discretionary Trusts: The units remove the Trustee’s discretion concerning the distribution of income.

Advantages of a Fixed (Unit) Trust:

  • Fixed Interests provide protection where more than one family or group in involved in the business;
  • Asset protection (where a corporate trustee is used);
  • Access to Small Business CGT concessions;
  • Access to 50% 12 month CGT discount;
  • Easy to raise capital by issuing additional units;
  • Can pay salaries and wages as well as superannuation;
  • Less regulatory requirements than trading as a company.

Disadvantages of a Fixed (Unit) Trust:

  • Sale of units can be a CGT event and attract stamp duty;
  • Not as flexible as a Discretionary Trust;
  • Trustees can be personally liable for some debts of the trust (if an individual trustee is used).

So should you use a family trust?

Business owners looking to shift their business operations into a trust structure can experience a number of benefits. We strongly recommend anyone interested in setting up a trust seek professional advice before doing so. Given the additional requirements of using a trust, we work closely with all clients that use this structure to ensure all their obligations are satisfied and it is used in the most efficient manner possible.

For more information about trusts or other structuring options please refer to our other articles in this series, or contact us for more a business structure review.

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