The countdown to Christmas has begun! Decorations are up, and Christmas parties are booked in. Many Australian businesses will pay for their staff, and in some cases spouses, to kick up their heels at an end of year celebration or give a nice gift.
As an employer, there are a few things to be aware of when planning Christmas parties or giving gifts, if you want to keep your tax bill in check or claim a deduction on your festivities.
Holding a Christmas party off-premises for your staff is regarded as an ‘entertainment’ expense.
Entertainment is not tax deductible unless it is associated with paying Fringe Benefits Tax (FBT).
An exemption may be available for FBT if the cost per employee of the party is less than $300 (and similar celebrations are infrequent). However, if it’s not associated with paying FBT, then it will not be tax deductible.
If you’re feeling generous and the cost is $300 or more per employee, then you can claim the cost as a tax deduction, but you have to pay FBT.
If you plan to run a function for clients and referrers, there are no FBT implications for these individuals, but the costs are not income tax deductible either.
Gifts below $300 are a tax deductible expense providing they are classified as a ‘non-entertainment’ gift. The same rule applies for other special occasions such as birthdays. As long as these gifts are ‘infrequent’, you can claim a tax deduction for amounts of less than $300 for employees and there is no FBT. Gifts of $300 or more will be subject to FBT but will still be deductible.
If your gift giving extends to your clients and suppliers, the gifts should still be tax deductible however the $300 limit does not apply.
One of the most important things to note when planning a deductible gift is to ensure the gift meets the ‘non-entertainment’ classification. Gifts such as gift vouchers, a bottle of alcohol, hampers, groceries, games, flowers, beauty products and computers all fit the ‘non entertainment’ classification.
Gifts that are considered ‘entertainment’ and therefore not deductible include theatre, movie or sporting event tickets, holiday or accommodation or tickets to amusement parks.
Tax implications to keep in mind
The GST input tax credits for the cost of the party or gift can only be claimed in the next Business Activity Statement if the cost of the party or gift is tax deductible.
The FBT and income tax implications of Christmas parties and gifts can change depending on the cost and types of FBT elections made.
Accordingly, before you put the finishing touches on staff Christmas festivities, discuss the tax implications and other strategies that should be considered with your usual Mazars adviser or alternatively contact one of our specialists via phone or the form below.
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