As the Christmas season gets into full swing so do the Christmas parties and gift giving for clients and staff.
Unfortunately, the Australian Tax Office (ATO) is keeping a close eye on Christmas expenses this year and according to Coco Hou CPA, CEO Platinum Accounting Australia, many businesses will make significant tax reporting mistakes because they don’t understand the tax laws around gifting and Christmas events and activities.
Christmas party employee expenses
“According to the ATO, Christmas parties are considered to be entertainment benefits and may attract fringe benefit tax (FBT),” Hou says.
An organisation putting on a Christmas party will be exempt from FBT if:
• the costs associated are considered to be minor benefits. The ATO will consider the costs to be minor benefits where they are provided to employees or their partners on an infrequent basis and are not considered to be a reward for services
• the costs are less than $300 per person including GST
• the Christmas party is undertaken on the business premises or online, on a working day
The ATO states that if employee family members come along and the cost per person is greater than $300 including GST, then FBT will apply to the portion that is over $300 and the business will be able to claim a tax deduction and GST credit for this amount as well.
Christmas party client expenses
“If clients attend the party in person, then they are not subject to FBT, but the business can’t claim income tax deductions or GST credits on their share of the cost,” Hou adds.
Parties held in a venue or other destination
“If the Christmas party is held off the business premises, then the rules change slightly. While staff and their families are subject to the same tax treatment, if clients attend, regardless of their cost, they are not subject to FBT and the business can’t claim any tax deductions or GST credits.
“For parties held off-site, it is important to note that the $300 per person threshold still applies for determining whether it qualifies as a minor benefit exempt from FBT.”
Christmas gifts for staff
The other area of interest for businesses at the end of the year is gifting.
“Many businesses like to thank staff with a gift at the end of the year,” Hou says.
“If the gift is considered a minor benefit by the ATO then no FBT is applicable. To be minor the gift must be less than $300 including GST and not an entertainment gift.
“Entertainment gifts have different tax implications. These include tickets to performances, the theatre, sports events or even a holiday. As long as they are less than $300 inclusive of GST, these gifts are not subject to FBT. If the gift is more than $300 including GST per employee, then FBT is applicable and the business can claim a tax deduction and GST credits.
“When it comes to entertainment gifts, while they may be exempt from FBT if under $300, the business cannot claim an income tax deduction or GST credits for these items regardless of their cost.”
Christmas gifts for clients
“Gifts for clients are generally tax deductible, however, I do recommend keeping spending to a reasonable level—this includes placing or sending online purchases,” Hou adds.
“It emphasises that when it comes to giving gifts to clients that are non-entertainment related such as a bottle of wine or a hamper, these are generally tax-deductible for the business, whereas entertainment gifts like concert tickets are not.
“Clarifying this for businesses helps them to make the right bookkeeping entries and avoid any nasty surprises at tax time.”
Image: iStock/Pekic
