Tax and Tinsel
Key Considerations for Christmas Business Expenses
As the festive season approaches, businesses often face questions about the tax implications of Christmas celebrations and gift-giving.
Here are answers to common queries to help navigate these issues.
The Christmas party
What can I do to make the staff Christmas party tax deductible or tax-free?
Not have one? Ok, seriously, it is likely that you will pay tax one way or another; it’s just a question of how.
If you structure your celebrations to avoid fringe benefits tax (FBT), then you normally can’t claim a tax deduction for the expense or GST credits.
Are Staff Christmas Parties Tax Deductible or Tax-Free?
Avoiding Fringe Benefits Tax
If you host your Christmas party in the office on a working day, then FBT is unlikely to apply to the food and drink.
Taxi travel that starts or finishes at an employee’s place of work is also exempt from FBT - helpful if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer.
If you host your Christmas party outside of the office and keep the cost per head under $300 (the FBT minor benefit limit) then FBT often won’t apply to the cost of entertaining your employees.
But, if you do not incur FBT, you cannot claim GST credits or a tax deduction for the Christmas party expense.
Claiming Tax Deductions
If your business hosts slightly more extravagant parties away from the business premises and the cost goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event.
Are Client Gifts Tax Deductible?
It depends on the gift and why you’re giving it. If you send a client a gift, the gift is tax deductible if you have an expectation that the business will benefit; it’s marketing.
While this seems like a mercenary way to look at Christmas giving, it is the business giving the gift, not you personally. This assumes that the gift is not a gift of entertainment like golf, or restaurants, which would not be deductible.
Are Staff Gifts Tax Deductible?
The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below the $300 FBT minor benefit limit. So, no ongoing gym memberships or giving the same person several of the same gift that adds up to $300 or more unless you want to give a gift to the ATO at the same time. But, you can give gifts at different times throughout the year without triggering FBT as these are counted separately for the minor benefit limit.
A cash bonus will be treated as income in much the same way as salary and wages.
Are Client Entertainment Expenses Deductible?
I like to catch up with clients for lunch or a drink (or two) at Christmas. These expenses are deductible, right?
Regardless of whether it’s for Christmas or at any other time of the year, the cost of entertaining your clients – food, drink or other entertainment – is not deductible.
The ATO is keen to ensure that taxpayers are not picking up part of the cost of your long lunches or special events while you’re bonding with clients.
Plan Ahead and Stay Compliant
Understanding these guidelines ensures your business can celebrate the season while remaining compliant with tax regulations. Thoughtful planning can help manage costs effectively while spreading festive cheer.
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