Christmas Tax: Is Your Business on the Naughty or Nice List?

Tis’ the jolly season.

Tis’ also the money spending season…and not just when it comes to secret Santa.

On the run to December 25th, thousands of Aussie small businesses will throw festive and fun Christmas parties for their staff, employees, clients, suppliers and partners. Splurging with gifts, presents, food and drinks for an event not to forget.

But what is the chance your small business will be wacked with a not-so-festive tax hangover for your efforts..?

Let’s answer this.

EMPLOYEES

The party of the year. The night each staff member has been asking about for the last three months, but is it a good idea for the business owner?

When throwing an end of year work Christmas party for your business’s employees what sort of expenses should you consider? Well in short, Fringe Benefits Tax (FBT) conditions and exemptions?

If you want a crash course at FBT check out our article on small business fringe benefits. Christmas essentials below.

In terms of FBT, the Australia Taxation Office (ATO) recognises that an employer is exempt from paying tax on Christmas party costs if they can be proven to be less than $300 per employee. If the cost is over the amount of $300 it’s the entirety that will be subject to FBT…not just the excess amount!

What about costs of food and drinks? Well as these falls under ‘entertainment’ these expenses are exempt from the Fringe Benefits Tax – only if the Christmas party is held on a working day, at your business location and is bought for the festivities of currents staff members. Got it?

If you’re feeling generous and give each employees a little Christmas present on top of hosting an end of year party, the Minor Benefits Exemption allows you to be spared the FBT on each gift, as long as it’s under the $300 threshold.

You may think of claiming your staff party as a tax deduction, think again. The ATO have ruled that the Christmas party is NOT tax deductible, and nor can a business claim any GST on it. However, if you purchase gifts/ presents for employees they are generally tax deductible and can be claimed as GST credit.

CLIENTS, SUPPLIERS & PARTNERS

Throwing an end of year Christmas party for business clients, suppliers and partners is a little different to employees as the Fringe Benefits Tax isn’t applicable (is only relevant to employee benefits by employers). The function’s costs are NOT income tax deductible either.

Gifts vs. Provision of Entertainment

You can generally claim a tax deduction for the cost of a Christmas gift for business clients and suppliers if it has a purpose of generating business income in the future. So, if you give your best client a pricey bottle of wine in the hope it will build further trust and lead to continued sales in the new year then that bottle of wine is indeed tax deductible!

When we talk about the provision of entertainment compared to a Christmas gift, the difference can a little bit of a grey area. If we us the bottle of wine example, provision of entertainment could be taking that best client to a bar, purchasing the bottle and consuming it on the bar’s premises. We suggest discussing these more complicated regulations with an accountant – we might know of a few…

From fringe benefits to business gifts and entertainment, Christmas time can be quite taxing on your small business if you aren’t careful with your expenses. Be sure to read up on your FBT compliancy conditions so you can celebrate the festive holidays in style.

For all your finance, tax, small business and bookkeeping needs, the team at ABA Tax have over 20 years of qualified experience so there’s no tax matter too big or small for them to handle.

For a FREE inquiry chat call 1300 797 175 or email at info@abatax.com.au.

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