Christmas is a great time to acknowledge and reward your employees and their associates by celebrating and giving gifts. But don’t get caught out by the ATO entertainment rules! Claiming 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. 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 to be entertainment then you cannot claim a business deduction or GST unless you pay fringe benefits tax on the entertainment.
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
If you give gifts to your employees keep them under $300 each, as benefits provided with a value of less than $300 are exempt from FBT. If you provide Gift cards or vouchers up to the value of $300 they are not considered to be entertainment.
Alternatively you can provide gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
An alternative is payment of a Christmas bonus. The bonus would be processed through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.
Enjoy the Party
Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses.
Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party!