Tips for a Generous & Tax Effective Christmas

alliance-accounting-business-solutions-christmas-tipsWith Christmas just around the corner, many companies are providing staff with gifts or celebrating the season with parties for their team.  It’s a great time to celebrate but there are some things you may want to keep in mind so your celebration doesn’t become a tax burden.

We’ve put together our Top Tips for a Generous and Tax Effective Christmas Season

1. Planning a Christmas Party?

Whilst getting your team together to reward and recognise their hard work during the year sounds like it should be a tax-deductible expense, unfortunately Christmas parties are regarded as “entertainment” and as such are not deductible. To make things worse, where the cost of the Christmas party is more than $300 per person, per benefit, this can result in the added burden of being subject to Fringe Benefits Tax (FBT).
Our Tip…

To avoid FBT, keep the cost of your party to less than $300 per person and per benefit, (separate ‘benefits’ include things like the gift, the party, taxi travel, etc.).

By keeping the cost under $300 per person, per benefit, you can avoid FBT, however it’s important to note that, unfortunately, the costs will still be regarded as entertainment and will not be tax-deductible.

2. Christmas Gifts for Staff?

Certain gifts are not regarded as ‘entertainment;’ are tax deductible and are not subject to FBT, (where they are less than $300 each). These include Christmas hampers, bottles of wine or other alcohol, gift vouchers, perfume, flowers, pen sets, etc.  NB: If any of these items exceed the $300 limit, they will be subject to FBT.

Other gifts, such as tickets to movies, sporting events, theatres, restaurant meals, holidays, airline tickets, tickets to theme parks, etc., are regarded as entertainment.  As such, where these are less than $300 each, they will not be deductible. Where they are greater than $300 each, they are subject to FBT.

Our Tip…

To avoid FBT, keep the cost of your gifts to less than $300 each and ensure they are not provided regularly throughout the year; i.e: monthly gym memberships or multiple gift vouchers amounting to more than $300 can be regarded as one gift and may push the value over $300.

To avoid FBT and obtain a tax deduction, choose items that are not regarded as entertainment, as outlined above, (Christmas hampers, bottles of wine or other alcohol, gift vouchers, perfume, flowers, pen sets, etc.).

Gifts of cash from the business are treated as salary and wages and are subject to PAYG withholding and superannuation contribution rules.

3. What About Your Customers?

The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out to a nice dinner or entertain them in any way, the costs unfortunately will not be tax deductible.  This is because such costs are regarded as ‘entertainment’, regardless of whether there is an expectation of generating goodwill and increased business sales.  Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.
Our Tip…
If you send your customers a gift, the gift is tax deductible, as long as there is an expectation that the business will benefit (and assuming the gift is not considered entertainment, as listed above).
Remember, our team are here to help you. If you need assistance ensuring you’re looking after your staff without looking after the Tax Man, simply contact us and we’ll help you and your team have a merry Christmas.