With only a couple of weeks until Christmas, the Christmas Party season is just beginning and so are potential tax hangovers.
With most Australian small business hosting Christmas Soirees, what are the tax issues that small business owners need to consider when it comes to entertainment and gifts?
1. FBT and off site parties If you throw a Christmas Party for your staff off site, the cost of providing the party would be treated as a fringe benefit and fringe benefits tax (FBT) payable by the employer. However provided the cost per employee is less $300, no FBT will be payable. This relates to the minor benefits exemption and it also applies to spouses & partners who also attend. Should the price per head exceed $300, the whole function will be subject to FBT.
2. FBT and on site parties these are usually exempt from FBT if held on a normal working day and attended by current employees. Spouse, partners and guests may be subject to FBT however if the cost per head is less than $300 then the minor benefit exemption can apply.
3. Can there be than one benefit?
Yes, there can as the minor benefits exemption applies to each benefit provided.
4. Transport to the party will count as part of the $300 per head limit for off-site functions but will be exempt from FBT if the party is held on site.
5. Are Christmas parties tax deductible?
The bad news is no. Whilst they are exempt from FBT (and thus no GST credits), no tax deduction is generally available.
6. What about Christmas gifts?
Gifts to employees are also FBT exempt, however the cost is tax deductible and a GST credits can be claimed.
7. What about parties for clients and suppliers?
As this is considered to be entertainment, no income tax deduction is available nor is there any FBT applicable.
8. Gifts for clients and suppliers are considered to be the nurturing of goodwill and thus income tax deductible.
As you can see from the above, Christmas is not always about fun and there can be a sting for businesses if you are not careful. Call us if you want more specific advice.
If you are naughty, the tax man will not be nice!
