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Latest News / Features

Latest News / Features

If an individual operates as a sole trader, as opposed to trading through a company, it allows for a simplified structure with fewer formal set-up tasks (and costs) and greater flexibility and control. However, differences can arise in how the income and expenditure of the sole trader are calculated, compared to the company. 

 

Tax-deductible meal allowances are one such difference, where these can be paid by an employer, to an employee, which self-employed taxpayers may not be able to deduct meal expenses. 

 

In July, Inland Revenue released a 37-page Interpretation statement, IS 21/06 that discusses the income tax and GST treatment of meal expenses and draws out this distinction. It provides that the reason for this difference is because meal expenditure for a self-employed individual is of a private nature, and therefore non-deductible. This difference in tax treatment reflects the different legal arrangements between a company and a self-employed person. 

Before presuming there is an advantage to be sought, consideration should also be given to whether the benefit to the employee could be captured as a taxable benefit and subject to PAYE or FBT.