- 1 December 2021
- Posted by: runningthenumbers
- Categories: Accounting, Fringe Benefits Tax
Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts. But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).
Is it Entertainment?
Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved then it will generally be called entertainment.
Fringe benefits tax may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST.
A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.
Gifts – Keep it Free From FBT
- If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
- Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
- Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
- Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
- Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.
Enjoy the Party
Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses. Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party!
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefits exemption is only available for employees, not associates.
The provision of a Christmas party to an employee may be a minor benefit and exempt from FBT if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is entertainment and so is income tax deductible only to the extent that it is subject to FBT. Therefore, any party costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be
claimed as an income tax deduction, and no GST is claimable.
Yes, it’s confusing. we know! The FBT and deductibility rules are complex. Please check with us if you aren’t sure. Happy Celebrating!