Are you planning a work Christmas party? Gifts to give to clients and suppliers? Employee Christmas bonuses?
Don’t get caught out by tricky entertainment rules – some of these may be claimed as a business expense.
Talk to Agilis CA about your costs this Christmas season.
Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts; however, 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, and 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 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 Tradies Tax to see if any of the party costs can be claimed.
What is Fringe Benefits Tax?
Fringe benefits tax (FBT) is a benefit paid to an employee – but not in the form of a salary or wage.
Examples of fringe benefits include:
- An employee using a work car for private purposes
- Giving discounted loads to employees
- Paying a gym membership for an employee
- Providing entertainment e.g., free concert tickets
- Reimbursing employee incurred expenses e.g., school fees
- Employee benefits under salary sacrifice
FBT is paid by employers and applies even if fringe benefits are provided by a third party under arrangement with an employer.
When it comes to Christmas parties, there is no particular FBT category and there are many different circumstances that can be encountered.
Fringe Benefits Tax and Christmas Parties
The following breakdown may help you in understanding FBT implications that can occur from a Christmas party for a taxpaying body.
Exempt Property Benefits
Costs such as food and drinks at a work Christmas party, are exempt from FBT if they are provided on a working day, on your business premises, and consumed by current employees.
Exempt Benefits – Minor Benefits
If the cost of a Christmas party is less than $300 per employee, the provision of the Christmas party may be deemed a minor benefit. Moreover, it may be seen as a minor benefit if the cost of the Christmas party for each associate of an employee is less than $300.
The less than $300 threshold applies to each provided benefit, not to the overall value of all associated benefits.
Employee Christmas Gifts
Christmas gifts to an employee may be deemed a minor benefit, if its value is less than $300. If a Christmas gift is provided in addition to a party by an employer, the benefits are subsequently associated benefits, but need to be considered separately to determine if their value is less than $300. If both are less than $300 in value and additional minor benefit conditions are met, both can be exempt benefits.
Christmas Party and Tax Deductibility
A Christmas party’s cost can be income tax deductible only if it is subject to FBT. This means that any FBT exempt costs (not including exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
NOTE: Costs associated with entertaining clients are not subject to FBT or are income tax deductable.
Christmas Party – Held On Business Premises
A Christmas party provided to current employees, on your current business premises or worksite, on a working day, could be an exempt benefit. Unless it is a minor benefit, the cost of associates attending the party is not exempt.
Christmas Party – Held Off Business Premises
Christmas parties held off your business premises e.g., a restaurant, will give rise to FBT for employees and their associates, unless the benefits are deemed exempt minor benefits.
Enjoy your Christmas Party! You’ve earned it.
Speak to Agilis CA when planning your Christmas party and gifts to see how much may be claimed as a business expense.
Once you know the costs of throwing a party, gift giving and bonuses, you can put your feet up and enjoy your Christmas party! After the year that was 2022, we all deserve to have some fun.
Contact Agilis CA today!
This blog was originally published by BOMA, but Agilis CA have added additional information for the benefit of our readers.