Can I Claim that Wine? Understanding Alcohol Deductions for Business Travel

You’ve just wrapped up a successful business meeting, and to celebrate, you decide to indulge in a nice bottle of wine.

But when it’s time to file your expenses, the question hits you—can you claim that wine as a business expense?

The answer isn’t as straightforward as you might think.

Let’s break it down.

Can Alcohol be a Deductible Business Expense?

As a small business owner—especially if you’re in the early stages of your journey—understanding deductible business expenses is crucial.

Getting the hang of what’s claimable is a hot topic when we are setting up bookkeeping for startups. It is one of the ways we set the right foundations for financial success. 

While travel, meals, and accommodation during business trips can often be claimed, alcohol tends to sit in a bit of a grey area.

The key lies in whether the expense is directly related to earning your income.

The Australian Taxation Office (ATO) is pretty strict when it comes to what counts as a legitimate deduction, so it’s important to know the rules before you raise your glass.

When Alcohol Might be Claimable

There are specific circumstances where alcohol can be considered a deductible expense. For example:

• Entertaining Clients: If you’re having a business meal with a client, and alcohol is part of the meal, you may be able to claim it as a deduction. The key here is that the expense must be directly related to your business activities.
  
  
• Business Meals: If you’re travelling for work and alcohol is consumed as part of a meal that has a clear business purpose, it could also be deductible.

However, claiming these expenses requires meticulous documentation. You’ll need to keep detailed records, including receipts and notes on the business purpose of the meal. Without this, the ATO could disallow the expense.

When Alcohol is not Claimable

On the flip side, there are plenty of scenarios where you cannot claim alcohol as a business deduction:

• Personal Consumption: If the alcohol was for your personal enjoyment, even if it occurred during a business trip, it’s not deductible. The ATO considers personal consumption separate from business activities, and these costs should come out of your own pocket.
  
• Non-Business Events: If the alcohol is consumed in a setting that isn’t directly tied to a business meeting or activity, such as a casual drink after hours, it doesn’t qualify as a deductible expense.

Claiming non-allowable expenses can lead to serious consequences, including penalties and audits, so it’s better to err on the side of caution—it’s a common mistake we see made when reviewing DIY  bookkeeping for startups.

How Business Travel Expenses are Viewed

When it comes to business travel, it’s essential to understand what qualifies as a deductible expense. Generally, to be deductible, expenses must be directly related to generating income. This includes costs like transportation, accommodation, and meals—but not all meals are treated equally.

For example, if you’re claiming a meal that includes alcohol, it’s crucial to demonstrate that the meal’s primary purpose was business-related. This might involve a meeting with a client or a work-related event.

However, if the alcohol is part of a casual celebratory drink with colleagues, it may not qualify as a deductible expense.

Best Practices for Claiming Alcohol on Business Trips

If you do plan to claim alcohol as a business expense, here are some best practices to follow:

• Keep Receipts: Always keep the receipt and make a note on it to remind yourself of the business purpose.
  
• Document the Occasion: Record who you were with and the purpose of the meeting or event. This documentation is vital in case the ATO asks questions. 
• Use Bookkeeping Software: Track these expenses in your bookkeeping software, like Xero, to ensure everything is recorded accurately and can be easily referenced later. Include your notes on the purpose of the meeting or event here, too.

Good bookkeeping for startups and established businesses alike involves staying on top of these details from the get-go to avoid future headaches.

What Happens if you Make an Incorrect Claim?

Accidentally claiming non-deductible expenses can lead to hefty penalties.

The ATO has the power to disallow claims, issue fines, and even initiate audits if they suspect a pattern of incorrect reporting.

To avoid these headaches, it’s always best to consult with a bookkeeping expert or BAS agent, such as Dollars + Sense, who can help you navigate the complexities of business deductions.

Claiming alcohol as a business expense can be a bit tricky, but with the right knowledge and practices, you can navigate it confidently. When in doubt, it’s always best to consult with a bookkeeping expert to ensure you’re on the right side of the law.