From Flat Whites to Fat Refunds: The Cafe & Restaurant Owner's Tax Survival Guide

Welcome, to the Podcast! Our newsletter made easy! Please note, this podcast features AI-generated voices for your hosts, Mia Taylor and Leo Baker, bringing you expert insights from owner, Ben De Rosa, at Aevum Accounting. Each week, we're here to help you confidently navigate the ins and outs of Australian tax – whether it's for your individual finances, or the complexities of your business. We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. So, if you're looking to understand your obligations, maximize your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! This week’s review comes from Boris Basque. He says: Ben de Rosa at Aevum Accounting has been our family and small business accountant for about six or seven years now, and I honestly cannot recommend him enough. He has supported us through every big milestone along the way, and I am really grateful for that. On top of that, Aevum’s modern systems make tax time so much easier. Everything is streamlined, there is way less back and forth, and it just makes the whole process feel painless. Such a great experience all round. Thank you for the amazing feedback Boris! We love hearing from our clients and a positive review gets our podcast started on the right foot. Mia, Hospitality is one of the toughest industries in Australia. The margins are thinner than a crepe, the hours are brutal, and the tax rules are as complex as a 12-course tasting menu. It really is the "pressure cooker" of business. Today, we’re talking to all our cafe owners, restaurateurs, and takeaway legends. We’re going to look at the deductions you might be missing, the reality of staff costs, and a very specific—and often overlooked—rule about what happens when you "eat your own profits." Literally. We’re diving into a document called Taxation Determination TD 2023/7. It sounds dry, but if you’ve ever taken a bag of coffee home or fed your family from the restaurant kitchen, you need to hear this. But before we get to the snacks, let’s talk about the heavy lifting. The "Three Golden Rules" of tax deductions apply to a cafe just as much as a corporate office. First, you must have spent the money yourself and not been reimbursed. Second, it must directly relate to earning your income. And third, you must have a record. In a restaurant, those records usually start with the big-ticket items. We’re talking about the "Goliath" ovens, the $15,000 espresso machines, and the industrial refrigerators. These are "Capital Assets." Because they cost a significant amount and last for years, you generally don’t claim the whole cost in one hit. Instead, you "depreciate" them over their effective life. However, for our small business owners with a turnover under $10 million, you should check the current "Instant Asset Write-Off" thresholds. It’s been a bit of a political football lately, but when active, it allows you to claim the full cost of that new fridge immediately. What about when that fridge breaks down? I’ve seen cafe owners trying to claim a full kitchen renovation as a "repair." That’s a classic trap, Leo. A Repair restores something to its original state—like fixing a leaking tap or replacing a broken heating element in an oven. That’s immediately deductible. An Improvement makes it better than it was—like ripping out the old lino and putting in high-end floor tiles. That’s a capital cost, and you have to claim it over time. So, fixing the coffee machine is a "Repair." Buying a second, better coffee machine is an "Improvement." Exactly. Now, let’s talk about the lifeblood of hospitality: Staff. Hospitality is a people business, but people are expensive. Beyond wages, you’ve got Superannuation, Workers' Comp, and sometimes Payroll Tax. And don't forget the "Staff Meal." If you provide meals to your employees on workdays, it’s generally a deductible business expense for you. However, you need to be careful with Fringe Benefits Tax (FBT). Typically, a simple meal provided on the business premises on a working day is exempt from FBT, but if you start taking the whole team out for lavish "bonding" dinners at a fancy steakhouse, the ATO starts looking for their cut. Record keeping is where most cafes crumble. Ben always says that a "shoebox of receipts" in a kitchen is just a fire hazard. With the high volume of small transactions in hospitality, you need a digital backbone. Integrating your Point of Sale (POS) system with your accounting software like Xero or MYOB is non-negotiable in 2026. It saves hours of manual entry. But even with the best tech, you have to manage Wastage and Spoilage. In a restaurant, your "inventory" literally rots if you don't sell it. You can claim the cost of goods sold, which includes the stuff that went off and had to be thrown out—but you must keep a wastage log. If the ATO sees you’re buying $5,000 worth of steak but only reporting $1,000 in sales, they’re going to ask who’s having the private party And that brings us to the "private party" rule—TD 2023/7. This is a fascinating bit of tax law. The ATO knows that if you own a sandwich shop, you’re probably eating a sandwich for lunch every day. And they know you’re probably taking a loaf of bread or a carton of milk home to the family. They call this "Goods taken from stock for private use." Legally, you aren't allowed to just claim the cost of that food as a business deduction if you’re the one eating it. Right. Normally, you’d have to keep a perfect record of every single olive or slice of ham you took home. But the ATO realizes how insane that would be for a busy business owner. So, they released this Determination, TD 2023/7, which provides "standard estimates." It’s basically a "shortcut" for cafe owners. Instead of counting every coffee bean, you just add a flat amount to your assessable income for the year. As an example, for the 2023-24 year, if you ran a Cafe or a Sandwich Shop, the ATO estimate is $2,010 per adult and $1,005 per child in your family. Wait, so if I’m a cafe owner with a wife and two kids, the ATO assumes we’ve eaten over $5,000 worth of cafe food? Yes. And if you run a Licensed Restaurant, that number jumps to $4,280 per adult. Why? Because they assume there’s probably some high-end wine or expensive cuts of meat involved. Takeaway food shops sit at $3,640 per adult. That seems like a lot, but if you think about a cafe owner having a $20 breakfast and two $5 coffees every day they work... that’s $150 a week. Over a year, that’s $7,800! So the ATO’s $2,010 estimate is actually a pretty good deal for the owner. It really is. It’s a "safe harbor." You use these figures, and the ATO won't argue with you about the specifics of your lunch. But remember, this only applies to the owner and their family. What about the "Pay it Forward" coffees? You know, when a regular comes in and the owner says, "This one's on the house"? That’s a marketing expense. As long as it’s done to build goodwill and attract future business, the cost of the milk and beans for that coffee remains a valid business deduction. Let’s move to the "Outdoor" deductions. In Perth, alfresco dining is everything. Can I claim the cost of the umbrellas, the outdoor heaters, and the barriers? Absolutely. Those are "tools of the trade." Even the cost of the local council permit for the alfresco area is a deductible business expense. and what about the "Home Office"? Most restaurant owners don't do their rosters and payroll in the middle of a noisy kitchen. They do it at home on a Sunday night. They do. And just like we discussed with engineers and real estate agents, you can claim the "Running Costs"—your electricity, your internet, and the depreciation on your home computer. But, as a restaurant owner, you generally can't claim "Occupancy Costs" like mortgage interest or rent, because your primary place of business is the restaurant itself. I also see a lot of cafe owners wearing branded aprons or specific "chef's checks" pants. Protective clothing is a big win here. Non-slip shoes, aprons, and chef's whites are all deductible. But a plain white t-shirt or black jeans you bought at the mall? Conventional clothing. Even if you only wear them in the kitchen, they aren't deductible. It has to be protective or a compulsory, branded uniform. Alright, let’s look at the "Naughty List" for hospitality. Number one: Fines. Health department fines, liquor licensing breaches, or even a parking ticket while you were at the wholesaler. They are not deductible. The ATO doesn't subsidize law-breaking. Number two: The "Owner's Wage" Trap. If you're a sole trader, you don't "pay yourself a wage." You just take "drawings" from the profit. You can't claim your own drawings as a business expense to lower your tax. Number three: Training for a new career. If you're a chef and you take a course in "Advanced Patisserie," that’s deductible because it improves your current skills. If you take a course in "Real Estate Sales" because you want to quit the kitchen, that is a private expense. Hospitality is high-risk for the ATO because there’s a lot of cash involved. The ATO’s data-matching looks at your lifestyle—the car you drive, the house you live in—and if it doesn't match the $30,000 profit you reported, they’re going to start asking about the cash till. Exactly. At Aevum Accounting, we’re all about Integrity and Trust. We help our hospitality clients set up systems that make compliance easy, so they can focus on the food and the service, not the fear of an audit. That’s a wrap on Episode 27! To all our hospitality legends—keep the coffee hot and the records clean. We hope today's discussion has provided you with valuable insights. Before we go, a quick but important reminder: The information shared today is for general informational purposes only and does not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws—especially for small businesses—are complex. For personalized advice tailored to your cafe or restaurant, we always recommend consulting with a qualified professional. You can connect with Ben and the team at Aevum Accounting. Visit our website at aevumaccounting.com.au to learn more about our services and how we can support your business journey. Thank you for tuning in! If you enjoyed this, please subscribe and share it with your fellow business owners. Until next time, stay savvy, stay proactive, and keep building your financial future! From all of us at Aevum Accounting, goodbye for now!