December Newsletter
It’s the festive time of the year again. We often have been asked the question about the tax deductibility of Christmas party and gifts.
The general rule is except in very limited circumstances “Entertainment expense” is not tax deductible. Entertainment expenses include provisions for food, drinks, recreation or travel and accommodation in relation to providing such entertainment.
To assess whether a Christmas party falls under above definition of entertainment, following four crucial questions need to be considered. None of the below factors on their own will determine if the food and drinks provided are entertainment, but why and what below are considered the more important factors.
Why is the food or drink being provided?
If you are providing food or drink in a social situation or gathering where the purpose of the function is for employees or clients to enjoy themselves then it is likely to be entertainment.
What type of food or drink is being provided?
The more elaborate a meal, the more likely it becomes that entertainment arises from eating the meal. Further alcohol plays a significant role in deciding whether entertainment is provided or not. Where alcohol is provided it is likely to be entertainment. A light meal or tea is less likely to be entertainment.
Where is the food or drink being provided?
Food or drink provided on your business premises or at the employee’s usual workplace is less likely to be entertainment. Food or drink provided off your business premises, such as at a function room, hotel, restaurant or consumed with other forms of entertainment, is more likely to be entertainment.
When is the food or drink being provided?
Food and drinks provided during the working hours or overtimes are less likely to have character of entertainment.
Hence in most cases a Christmas Party will not be tax deductible.
Fringe Benefit Tax
Another tax you need to consider is Fringe Benefits Tax (FBT). It applies to your employees if you are providing a benefit which has taxable value of more than $300. If you take your employee out for Christmas party and per head cost is more than $300 you have to pay FBT. This can prove very expensive.
So what gifts you can give to your clients and employees to say thank you and claim a tax deduction, GST and pay no FBT.
Here are some examples. As long as they are under $300 they are going to be fine.
- Bottled Spirits – Sealed Gift , must not be consumed on premises
- Gift Baskets
- Department store gift card like Coles Myer, David Jone, BWS
- Flowers
Do not give ticket and gift cards to:
- Movies
- Meals and restaurants
- Golf &sporting events
- Theatre & concerts
- Fishing trips
- Travel, flights & Accommodation (that is not work)
Disclaimer
The information presented here is general in nature; we have made various assumptions which might not reflect your particular circumstances. You should always seek personal advice disclosing individual
circumstances to be sure that the information is right for you.