Insights – Don’t let the ATO Grinch ruin your Christmas.
Although Christmas is a time for celebrations, as a business owner there are a number of things we need to remember to ensure the festive season is fun but also that you don’t end up with a post Christmas financial hangover.
As we head into the festive season, many workplaces are planning their annual Christmas party where we celebrate our team successes and end the year with a bang and although this is a great way to reward your team, the ATO considers these type of celebrations as entertainment, which means there are tax implications that can arise.
A fringe benefit is equivalent to a lump of coal in your stocking on Christmas day and applies to any non cash benefit provided to an employee by the employer. Based on this definition, the work Christmas party could be subject to FBT.
There are two main exemptions which can apply which will mean your celebrations can be FBT free
- Minor benefits exemption- Where the cost of the party for each employee is less than $300 it will not be subject to FBT. An exemption could also apply for an employees spouse as the $300 threshold applies to each benefit provided, not to the total. This also means gifts provided to an employee at Christmas time may be a minor exempt benefit where the value of the gift is less than $300 and payment for a taxi home for an employee will also be exempt.
- Exempt property benefits- Costs of the Christmas party will also be exempt from FBT where food and drink is consumed at the employers premises on a business day. This rule will only provide an exemption for employees and not their associates attending the Christmas party.
If you are eligible to access the exemptions above and not pay FBT, you will need to remember that the costs will not be tax deductible and you will not be able to claim GST on these amounts.
If either of these exemptions don’t apply you will be stung with FBT of 47%- not a nice reward for celebrating with your team. Where you have paid FBT on the expenses the cost of the party will become a tax deduction.
Where clients are attending your Christmas party, the costs will not be subject to FBT, but also will not be tax deductible as it is still considered entertainment.
In the season of giving we might also be in the process of organising or sending out Christmas Gifts. What better way to recognize and thank our clients or professional associates by sending a Christmas gift to celebrate the festive season.
Gifts such as chocolates, alcohol, hampers, flowers and gift cards are not considered entertainment and will be tax deductible, however more extravagant gifts such as tickets to a theatre, sporting or musical events are considered entertainment and would not be tax deductible and GST can not be claimed.
The other thing to remember when planning your festive gifts is to set a budget and stick to it. It can be easy to get carried away in the Christmas spirit in terms of giving, which is great, until the credit card bills comes in for the New Year and cash flow is stretched more than anticipated.
Don’t forget to account for extra costs such as postage and delivery in your budget and also consider the time cost for your team for organizing, wrapping or delivering gifts if you are planning on arranging things in house, as the impact on business production and efficiencies can have a financial impact in itself.
So as we move closer to the festive season, we are definitely not saying that you shouldn’t reward your team for their efforts throughout the year with a Christmas party, or that you should not show your clients appreciation through a special Christmas gift. We do however, recommend that you have a plan and a budget for your Christmas spending and that you understand the tax implications of each of the costs to ensure we keep the ATO Grinch from ruining your Christmas.
How Can Alto Help?
If you need help understanding the tax implications of your Christmas plans or with setting a Christmas budget, the team at Alto can help.
Author: Donna Bruce