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December 1, 2021

Inland Revenue has produced their interpretation of the tax law IS 21/06 on the subject of meal expenses. 

The interpretation is based on case law.

The general principle is the self-employed can’t claim meal expenses, but shareholder employees of companies can. Why?

A company is a separate legal entity. It’s allowed to reimburse its staff, including the owner of the business, when they are away from work, for refreshments they could have received at work. 

If an employee has to have a meal, due to having to work at a long-distance from the company base, the cost can also be tax deductible to the company.
For example, a company employee has to work so remotely from the company base that it’s not until 9pm they get home. It would be reasonable for an employer to pay for dinner. This would be tax deductible and it would not be income for the staff member.

A private individual running a business is treated differently. The legal starting point is that any food or drink is a personal cost because it’s necessary to maintain life. 

Taking the example of getting home at 9pm, if the self-employed person bought a meal before travelling home, this would still be considered a personal expense.

There can be extreme examples. For example, a self-employed person has to go to the Chatham Islands and stay the night. The only accommodation he can get into is the Waitangi Hotel. Although there is a supermarket, there is no self-catering at the hotel, so he has to buy his dinner.  The excess cost of the meal over what he would normally pay, is tax deductible. 

Note: If this person was running a company, they would be an employee and the entire cost of dinner would be tax deductible.

What if the self-employed person has a couple of employees? Because they are away from their business base, the employer buys coffee and doughnuts for all three for morning tea. The expenditure on the employees is a tax-deductible cost. The expenditure for the employer is a personal cost and not tax deductible.

Instead of reimbursing, can an employer just pay a fixed allowance for morning and afternoon teas when the employee is working in a place away from their workplace?  Yes. 

One of the illustrations has an employee living in Upper Hutt and working all day in Wellington, about 30km away. Inland Revenue has used a reimbursement figure of $15.

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