They know when you’re sleeping, they know when you’re awake, they know when you’ve been bad or good, so be good for the ATO’s sake.
Celebrating the holiday cheer can have far-reaching consequences but planning ahead and budgeting appropriately can save you from much bigger headaches in the New Year.
1. Give yourself a tax-free Christmas
As small business owners we work hard all year and Christmas is a great excuse to celebrate your achievements. With careful planning, you can provide employees with end of year benefits in the most tax-effective way.
2. Know your limit
Whether your Christmas party is considered ‘entertainment’ or ‘non-entertainment’ will make all the difference for the ATO. There are exceptions where entertainment does become deductible, but in the case of the ATO, the exceptions are few and very specific. In the tax office’s case though, you’ll be more likely to be FBT exempt if the premise your party is held at is classified as ‘non-entertainment’.
3. Don’t let the gift of giving cost you
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. Gifts under $300 which are considered to be entertainment (cinema, concert, sporting event tickets) are eligible for the $300 minor and exempt benefits exemption and should escape FBT but are not tax-deductible and no GST can be claimed.
4. Make a list and check it twice
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.
5. Jingle all the way
Thanking your employees for their hard work with a cash bonus may trigger PAYG withholding, super guarantee and payroll tax obligations. The ATO will treat cash bonuses as ordinary time earnings.
If you want to avoid a New Year hangover and need to adjust your entertainment spend, talk to us to arrange a consultation.
[Source: Australian Tax Office]
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