Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving staff gifts. But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straightforward, 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 generally, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved, it will generally be called entertainment.
Fringe benefits tax may apply to entertainment benefits provided to employees. If an event or gift is considered entertainment, you cannot claim a business deduction or GST.
A Christmas party for employees, spouses, suppliers, and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.
Keep it Free From FBT
- If you give gifts to your employees, keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
- Give 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.
- Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
- Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
- Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.
Enjoy the Party
When planning your Christmas gifts and events, talk to us 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 party!