Most people assume that if they are paying for a staff Christmas party that it’s an automatic business expense.
With Christmas fast approaching most businesses will want to thank their staff for the hard work they’ve done throughout the year by celebrating with a party, dinner and drinks out on the town or maybe dancing until dawn at a nightclub.
Unfortunately the rules around recording celebrations and gifts as business expenses are not straightforward and can be confusing. In some circumstances you can end up paying extra tax on those expenses called Fringe Benefits Tax (FBT) because the ATO considers these gifts and parties an additional benefit to staff members that they’re not being taxed on.
There are a number of rules (and not all of them are very clear) about whether or not a Christmas party is a business expense or not and if it will be subject to FBT.
The main thing that it comes down to is whether the party includes ‘entertainment’ which is considered a fringe benefit for staff.
So a party that meets the following criteria is likely to be classified as a business expense and not subject to FBT:
- It is held during business working days
- It is held on the business premises
- No alcohol is served
- Only light meal or finger food is served
- No other attendees (spouse, children, etc) invited other than staff
- The cost per staff member does not exceed $300.
Even if you meet most of the previous criteria remember that if your party has any of the following things it’s no longer a business expense:
- If alcohol is served
- If staff members are bringing guests (like partners or children)
- If it’s held off site from your business premises
- However if your party includes any of the following things you may be up for FBT:
- If the party is held at a restaurant or cafe
- If the party is held at an entertainment venue ie cinema, night club, theatre or sporting venue
- If alcohol is included no matter what type of venue
The ‘entertainment’ rule also affects any gifts you give to staff. Any of the following gifts given to staff member (under $300) could be considered business expenses and would probably not attract FBT:
- Gift certificates
- Beauty products
- Food hampers
- Plus other non ‘entertainment’ gifts
However gifts that could be considered as ‘entertainment’ like the following could attract FBT and would not be a business expense:
- Tickets to the cinema (but not cinema gift cards)
- Tickets to the theatre
- Tickets to sports events
You should note however that the same restrictions do not apply when giving gifts to customers or suppliers but you do need to be aware that they are only a business expense if they are not ‘overly valuable’. There is no definition of exactly how much ‘overly valuable’ is so it’s best to play on the side of caution.
Plan ahead of time
Understanding what you can claim as a business expense will help you plan ahead of time how you will manage your cash flow in this upcoming Christmas period. It’s worth keeping in mind that business isn’t all about what you can write off as a business expense, sometimes it’s worth taking care of your staff, customers and suppliers without worrying about that and just footing the bill, you need to decide what’s best for your business.
If you want to invite us to your Christmas party, or just talk about how we can help with your bookkeeping – CONTACT US NOW
IMPORTANT: “This article is general in nature and should not be considered tax advice. You should always discuss any tax issues either with your Accountant or the ATO”.