It’s said that two things are certain in life: death and taxes. But we’re pretty sure it’s three things. And the third one is Christmas.
The wrapping paper and wreaths have been in the shops for weeks. Every version of “Jingle Bells” known to man is receiving air time. And the kids are writing letters addressed to a fat man at the North Pole.
Fun and festivities aside, as a business owner, there is a serious side to Christmas worth considering: and that is what you can and cannot deduct when hosting a business Christmas party or giving Christmas gifts to your employees.
Accepted Custom and Practice
There are no special rules for Christmas expenditure and acceptable deductions, but we can provide guidance on accepted customs and practices. If in doubt, always seek advice from your Tax Agent or approach the ATO for a ruling.
(Please note that the following information is general in nature, and assumes that you are not using the 50-50 split method, or the 12 week register method for meal entertainment expenditure. If you have any specific questions, call EzyAccounts on 1300 313 397.)
Work Christmas Gifts
When it comes to giving Christmas gifts to your employees, non-entertainment gifts qualify as a deductible expense and are not subject to fringe benefits tax (FBT) if their value is less than $300 per employee (including GST). Examples of “non-entertainment” gifts include: food hampers, flowers, clothes, sports watches, skincare/beauty products, perfume, wine, and gift certificates.
Entertainment gifts for employees, such as tickets to the cinema, theatre, or a sports event, are not deductable and you cannot reclaim GST, regardless of price. (However, remember that a $50 gift voucher for the cinema is deductible, while an entry ticket worth $50 is not.)
Gifts for customers, suppliers, and volunteers are also a deductible expense, so long as they are not excessive or overly valuable. This is not clearly defined, so we advise that you exercise conservative judgement when making a call.
Work Christmas Parties and “Entertainment”
When it comes to work Christmas parties and deductions, one important factor to consider is whether your party involves “entertainment” or not.
For taxation purposes, an event is considered to involve “entertainment” if:
• Alcoholic drinks are served as part of the event, regardless of the venue
• It’s held at a restaurant or café
• It’s held at a sporting venue, theatre, cinema, or night club
If the event involves “entertainment”, it is not deductible.
Further Christmas Party Rules
For the entire cost of a Christmas party to be a deductible expense, and for your employees to avoid being liable for fringe benefits tax (FBT), your Christmas party must meet the following criteria:
• Held on your business premises
• Held on a working day
• Held for current employees, volunteers, customers, and suppliers only
• No alcohol
• Only finger food or a light meal provided
• No employee associates (e.g. spouses, children, etc.) present
If a Christmas party includes any of the following elements, the entire cost in non-deductible:
• Alcohol is served
• Employee associates (e.g. spouses, children, etc.) attending
• Held at a location other than your business premises
It’s also important to note that so long as the cost per attendee is less than $300 per person, your employees will once again not be liable for FBT. The same limit applies to an employee associate, making the limit less than $600 for a couple.
Employees and Fringe Benefits Tax
Fringe benefits tax (FBT) applies to employees only. The FBT year runs from 1 April to 31 March. FBT does not apply to “minor benefits” – that is, benefits that are provided infrequently to an employee, are not a reward for services, and cost less than $300 per person per benefit (including GST). It’s also important to note that FBT only applies to benefits provided by the business.
One way to avoid the extra administrative burden and cost of paying FBT is to provide benefits personally. As such, to avoid FBT, some business owners may choose to pay for benefits from their private funds, and do not enter these transactions into their business accounts.
Planning Your Party
We advise you to plan your Christmas party with consideration for the tax rules, legitimate deductions, and FBT liabilities. However, we also suggest that you do what is right to build business relationships, and don’t worry if this results in non-deductible expenses or private financing if the goodwill is worth more to you than the deduction.
If you have any specific questions about Christmas parties, gifts, FBT, or Christmas party tax deductions call EzyAccounts today on 1300 313 397.