In a final interpretation released on 7 July 2021, the IRD has concluded that in general, meal expenses for self-employed taxpayers are not deductible for income tax purposes, nor is input tax for GST purposes able to be claimed on such expenses.

Expenses incurred to enable income to be earned are generally deductible; however, a distinction is made between expenses incurred in order to earn an income versus to enable a person to live.  Food is regarded as being private or domestic, and accordingly, the IRD expressly denies a deduction for such in the Income Tax Act 2007, which is the basis for the IRD’s position for self-employed taxpayers. 

It is noted, however, that extra costs in relation to meal expenses incurred when a self-employed taxpayer works out of town may be deductible if it is deemed that the working conditions are sufficiently unusual.  This does not mean that a self-employed taxpayer’s own meal is deductible just because they are working away from home, but more that the facts of each circumstance must be looked at carefully to determine if the extra cost element is justified.

However, meal allowances or reimbursements are deductible for income tax purposes for employees or self-employed persons who have incorporated a closely held company and have become employees of that company, whilst they are performing their duties.  This permissibility for employees is on the basis that expenditure incurred in relation to paying employee expenses has a nexus with deriving accessible income for the business.  This therefore means that the income tax treatment of meal expenses for self-employed taxpayers is different from the way those same expenses are treated for employees.

The GST input tax treatment of meal expenses for a self-employed taxpayer follows the same line of reasoning as that of the income tax treatment.  If meal expenses are regarded as of a private or domestic nature for income tax purposes and the expenses are deemed to be non-deductible, then the input tax for GST purposes would also not be deductible.  The basis of this is that meal expenses in such circumstances are not used to make taxable supplies.

Get in touch with one of our team members if you want to discuss how these rules might affect you and your business.