The silly season is here – celebrations, awards nights, end of year presentations, school holidays, and of course the end of year Christmas party. We are commonly asked what your business can pay for staff and suppliers at Christmas, so here’s our handy guide, including a few tips to ensure you get the best outcome possible.
Unfortunately, the fact that you plan to have fun at your Christmas party doesn’t bode well for your tax (we highly recommend having fun anyway). Christmas parties are considered entertainment, which brings the into the Fringe Benefits Tax (FBT) provisions. If the cost of the Christmas party is less than $300 per employee, the party is not deductible to your business but is not subject to FBT. If the cost per head is more than $300 per employee the party will become subject to FBT (at a cost of almost the same amount as the party itself). The cost of the FBT and party would then be deductible to your business. Generally, for tax purposes, you will be better off keeping to the $300 per person limit.
There is one exception, which allows you to have a tax-deductible Christmas party exempt from FBT – parties provided only to current employees, held on the business premises on a work day are both exempt from FBT and tax deductible. The more creative among you may be able to create a fun party at work on a work day, and the Tax Office will reward you for your efforts.
Christmas gifts given to employees which are non-entertainment gifts, such as Christmas hampers, wine, gift vouchers or other physical gifts, are generally deductible. Provided the cost of the gift is less than $300 per employee, the gift will be considered a minor benefit and will not be subject to FBT. That’s about as good as it gets– no FBT and a tax deduction. However, you must stick to the $300/person limit. More extravagant gifts will not qualify for the minor benefit exemption and will attract FBT – at which time you would generally have been better paying a wage bonus to your staff. If you think this might be you, please check in with your A Squared Advisers accountant.
Christmas gifts which are considered entertainment, such as movie tickets, tickets to sporting events or holiday accommodation are not subject to FBT if less than $300 but not tax deductible. If more than $300 they are subject to FBT.
Therefore, gifts which are property (wine, gift vouchers, hampers etc) receive a more favourable tax treatment than gifts which are entertainment (tickets to events or holidays).
Gifts for suppliers and customers
Christmas gifts for suppliers and customers are deductible provided you can show they relate to your income earning activities, and the gift is not considered entertainment. Entertainment would be tickets to shows/movies/sporting events etc which are specifically not tax deductible.
Parties for suppliers and customers
Provided your suppliers and or customers are not former (or future) employees, benefits provided to them are exempt from Fringe Benefits Tax as FBT only deals with payments to employees and their associates. However, parties specifically fall into the tax category of entertainment which makes them not tax deductible.
Medical & allied health service entities
Many medical service entities will have a Christmas party that combines professionals with administration & nursing staff. The professional team will generally not be employees, rather customers. In this case is important to keep records of who attended so that the tax treatment can be appropriately determined.
We hope you’ve had a rewarding and fulfilling year in 2017 and can take some time out to celebrate your business achievements with your team. If you have specific questions about your Christmas parties for your medical or dental practice we are only ever a phone call or email away, and always here to help.
Disclaimer – this is general advice only which has been written for small businesses who do not hold a fringe benefits tax exempt entity status. Advice specific to your circumstances can be obtained by contacting A Squared Advisers.