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Tax Implications of Work Christmas Parties and Gifts

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With Christmas just around the corner, employers are planning their Christmas party and Christmas gifts to employees.

But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).

Is it Entertainment?

Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved, then it will generally be called entertainment.

Fringe benefits tax (FBT) may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST.

A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.

Keep it Free from FBT

How to avoid Fringe Benefits Tax on Christmas gifts to staff.

  • If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
  • Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
  • Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
  • Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
  • Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.

Enjoy the Party

As can be seen, there are a few things to consider when planning your next Christmas party or Christmas gifts for your employees and clients.

Where you choose to have your Christmas party, the cost/head of your Christmas party or the spend on a Christmas present or type of present given can often save you thousands of dollars in tax, so it’s important to be aware of the rules which apply.

Talk to Balanced Beans when planning your Christmas gifts and events to check how much may be claimed as business expenses.

Once you know the tax implications of throwing a work celebration and giving gifts and bonuses, you can put your feet up and enjoy the party!

As always, don’t forget to keep all records relating to all your business Christmas expenses. 

Need help working out if Christmas parties and gifts are tax-deductible?

The tax deductibility of Christmas entertainment can be a confusing area for many business owners. If you would like specific tax or FBT guidance during this time, get in touch with the bookkeepers and accountants at Balanced Beans. Submit an online enquiry or call 02 4046 1000. Disccover why Newcastle small businesses rely on us for tax services, accounting, bookkeeping, and more.

Balanced Beans can help you understand tax rules around business Christmas expenses.

We are a professional Newcastle Bookkeeping and Tax Agency working with clients throughout the Hunter Valley and beyond.

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