As we put up our Christmas trees and hang the decorations, the festive season isn’t just a time for cheer, but also a critical period for business owners to understand the tax implications of holiday festivities. At PCR Accounting & Advisory, we’re decking the halls with useful tips on how to navigate the tax season this Christmas without getting tangled in the tinsel of Fringe Benefits Tax (FBT).
Tax Deductions for Christmas Work Parties
First off, let’s talk about work Christmas parties. Yes, you can claim tax deductions here, but there are rules to keep in mind – this is where you might benefit from a good bookkeeper. If your business holds the party on its premises on a regular workday, and the festivities are alcohol-free, you can claim these costs. If your business is registered for GST, you can also claim the GST credits on these expenses.
Understanding Fringe Benefits Tax (FBT)
FBT is the tax associated with non-cash benefits provided to your team. If you’re giving out tickets to movies, a festive lunch, or even the use of a company car as part of your Christmas generosity, FBT could apply.
Off-Premises Christmas Celebrations and FBT
If you’re planning to celebrate outside your business premises, the tax rules get a bit stricter. Typically, these expenses aren’t deductible, and they can attract FBT. However, if you’ve paid FBT on these events, you can claim a full deduction.
Deductible Refreshments at Your Festive Gathering
When it comes to what’s on the table at your Christmas party, ‘light refreshments’ like finger food, sandwiches, and non-alcoholic drinks can be tax-deductible. However, if alcohol enters the mix, these expenses generally become non-deductible and FBT might apply, as alcohol is considered entertainment.
What Gifts Can I Claim on Tax?
For Christmas time, you can claim tax deductions on certain gifts given to employees and clients, but there are specific rules to follow:
- Non-Entertainment Gifts to Employees: Gifts that are not for entertainment (like wine, hampers, skincare products, or gift vouchers) and cost less than $300, including GST per employee, are fully tax-deductible and exempt from Fringe Benefits Tax (FBT).
- Minor Benefits Exemption: This applies to small benefits, including gifts, provided to employees or their associates (like partners), which are infrequent or irregular, not a reward for services, and cost less than $300 inclusive of GST. These are exempt from FBT.
- Gifts to Clients: Generally, you can claim tax deductions for gifts given to clients, as long as they are not considered entertainment gifts and are not overly extravagant. This includes items like gift vouchers, hampers, or business-related merchandise.
- Non-Entertainment Gifts Over $300: If the value of a non-entertainment gift to an employee is $300 or more, including GST, you can still claim a tax deduction and GST credit, but you’ll need to pay FBT on the grossed-up value.
The Entertainment Factor
Entertainment at Christmas parties or as gifts can indeed be generous, but also a bit tricky in the eyes of tax deductions. Any form of entertainment that you provide, be it a sit-down dinner, tickets to a show, or a day of fun activities, is typically non-deductible unless FBT is paid.
Gifting Without the Tax Sting
Gift-giving is an integral part of the Christmas spirit, and it’s also a smart way to show appreciation to your team and clients. Tax-wise, gifts that aren’t considered entertainment, like hampers or gift vouchers, are deductible. But gifts that offer an experience, like tickets to an event, won’t get the same treatment.
The Minor Benefits Exemption: A Festive Saving Grace
Good news! As mentioned above, there’s a potential tax relief in the form of the Minor Benefits Exemption. This is like a Christmas miracle for your business. If you keep your per-head spending under $300 and meet a few other conditions, you can dodge FBT.
Is a Christmas Bonus Tax Deductible?
If your business has had a banner year, you might want to share the love with a Christmas bonus. These are taxable as wages, but they’re also deductible as a business expense. Just make sure you’re withholding the correct tax amount.
The Takeaway for Business Owners
Navigating the tax implications of Christmas celebrations and gifts doesn’t have to be as daunting as a lump of coal in your stocking. With a little planning and understanding of the tax rules, you can spread the festive cheer without worrying about the tax bill come the new year. Running a small business? Here are 5 reasons you need an accountant to keep everything flowing smoothly no matter the season.
Remember, the key to a stress-free Christmas tax season is understanding the fine print of what’s deductible and what’s not, and where FBT applies. And if you find yourself puzzled over whether that Christmas party expense is naughty or nice for your tax return, PCR Accounting & Advisory is here to guide you.
Need Help with Christmas Parties and Tax?
PCR Accounting & Advisory is your partner in navigating tax during the festive season. Contact us on 03 9847 7516, and let’s make sure your business’s Christmas cheer is matched with a merry tax season!
Disclaimer: This blog post is for informational purposes only and should not be considered as financial or legal advice. Consult with a qualified professional for personalised guidance based on your specific circumstances.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.