With the silly season behind us, we’re urging small businesses to check they didn’t extend their party invitations and gifts to the tax man.
We don’t mean to sound like the Grinch, but it may be worth considering the following when rewarding your employees with gifts or parties at any time throughout the year.
Know your Limits
It all depends on who attends and where the party is being held. At first glance a Christmas Party could be considered a benefit, however, it could also be exempt from FBT if its value is less than $300 per employee.
542 Tip: The threshold applies to each benefit provided, not to a total value of “associated benefits”.
What Can You Claim?
| Christmas party held at your premises on a work day | Christmas party held at other premises | ||
|---|---|---|---|
| If only employees attend | Only employees attend at $195pp | No FBT (minor exemption applies), not tax deductible | No FBT, not tax deductible |
| Current employees and spouses at $180pp | Employees and associates at $195pp | No FBT (minor exemption applies for both), not tax deductible | No FBT (minor exemption applies for spouse) |
| Employees and clients at $365pp | Employees, associates and clients at $365pp | Employees and associates – FBT applies as value more than $300pp Clients – No FBT and not tax deductible | Employees – No FBT and not tax deductible Clients – No FBT and not tax deductible |
| Employee associate at $365pp (family members) | FBT applies as value more than $300pp | ||
542 Tip: If a Christmas gift or benefit to an employee is exempt from FBT, such as a minor benefit, you typically won’t be able to claim it as an income tax deduction, nor can you claim any GST credits from the purchase.
Ho ho hum
| Type of Gift | Gifts to employees and their family | Gifts to non-employees such as clients, suppliers, contractors etc. |
| Non-Entertainment Gifts · Christmas Hamper · Bottle of Wine or Spirits · Gift vouchers · Flowers · Other Gifts | Subject to FBT unless considered a minor benefit Minor benefit is a gift less than $300 (GST inclusive) and provided infrequently. Gift is then considered not a tax deduction nor can you claim GST. | No FBT Applies Gift is tax deductible and GST can be claimed. |
| Entertainment Gifts · Theatre or Musical Tickets · Movie Tickets · Tickets to sporting events · Flights and accommodation for holiday · Membership to a club | Subject to FBT unless considered a minor benefit. Minor benefit is a gift less than $300 (GST inclusive) and provided infrequently. Gift is then considered not a tax deduction nor can you claim GST. | Not Subject to FBT Not Tax deductible GST cannot be claimed |
Thanking your employees for their hard work with a cash bonus may trigger PAYG withholding, super guarantee and payroll tax obligations.
542 Tip: The ATO will treat cash bonuses as ordinary time earnings.
The 542 take
The topic of entertainment, tax deductibility and fringe benefits tax is complex. To keep accurate accounting records we recommend that non-deductible entertainment is coded separately to deductible entertainment. That way, come tax time the lines will not be blurred.
If you want to avoid a tax hangover and need to adjust your entertainment spend, talk to us to arrange a consultation.
[Source: Australian Tax Office]
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