When gearing up for a festive season in Australia, business owners get into the Christmas party spirit (remember to invite your accountant). Keeping a close eye on their bottom line though can be hard since there is always a number of additional expenses around Christmas time and in the typical slow January.
Amid the tinsel and celebration, understanding how Christmas parties affect your profit becomes paramount for the savvy business owner of all businesses.
Ah, the season of joy, giving, and the annual office Christmas party!
Did you know that amidst the festivities:
there's a chance that you could be paying additional tax to through that Christmas party?
Yes, you read that right! More tax!
The holiday cheer may not add up if extra tax is what you get out of it!
So what is this extra tax?
Well there is 2 -
Unavoidable income tax (because Christmas parties are not tax deductible)
Fringe Benefits tax (the penalty the business pays for giving gifts)
In short:
Christmas Parties are at best: not tax deductible!
Here is the link to the ATO quick guide:
The Not-So-Short Story:
If your business holds a Christmas party:
on a working day, on your business premises, and only for your current employees, you don’t have to pay the penalty fringe benefits tax (FBT) for the food and drink, BUT you cannot claim a tax deduction for the expenses OR claim the GST back on your BAS
off your business premises, or the party includes associates of employees (such as their partners), you don't pay penalty Fringe Benefits Tax if the party cost is less than $300 per each current employee BUT you cannot claim a tax deduction for the expenses either OR claim the GST back on your BAS
that includes clients, you don't pay the penalty Fringe Benefits Tax for the costs relating to the clients BUT you cannot claim a tax deduction for the costs OR claim the GST back on your BAS.
If you give your current employees a Christmas gift:
you don't pay the penalty Fringe Benefits Tax if the value of the gifts is less than $300 per current employee BUT be careful: the $300 is the cap for the whole year. Your Christmas party and the gifts you give to each current employee must be less than $300 in total
If you want to be able to claim a tax deduction and the GST, then you will be charged the penalty Fringe Benefit Tax. This doesn't necessarily work out any better and it can get complex on how you calculate the taxable value for the Fringe Benefits Tax (for example, meals costs can be calculated differently from gifts)
CLICK HERE to see what ATO has to say about this
Expenses Fit for Deduction?
The festive feast isn't just a merry occasion — it's a potential deductions nightmare waiting to happen. Here is an example of costs that you have to consider for Fringe Benefits Tax or as Non Deductible Expenses:
Venue Rental: The cost of renting that enchanting venue.
Feast & Cheers: Food, drinks, and a toast to the season.
Entertainment & Fun: From live music to team-building activities.
Festive Decor & Supplies: Those sparkling lights, wreaths, and all things merry.
Getting There & Back: Transport for your merry attendees.
Gifts: Tokens of appreciation for your hardworking elves.
Miscellaneous: Photography, stationery—every festive touch counts.
Keeping the Paper Trail
Don't let the joyous moments distract you from the paperwork! Remember to keep detailed records—receipts, guest lists, and any Santa-worthy evidence—to ensure your deductions sleigh through audits.
Click HERE to book a FREE online meeting with our tax experts
Tax Implications & Maximizing Deductions
Claiming deductions can jingle all the way to tax liabilities. Seeking professional advice ensures you navigate these festive financial waters without a hitch. Plan wisely to optimize deductions—think cost-effective yet joyous celebrations with a clear business purpose.
Spotting Red Noses (Red Flags)
While Rudolph's nose is charming, red flags in expenses aren't! Excessive spending or parties with a purely social flair might attract the wrong kind of attention from tax authorities.
Alternatively:
While the idea of claiming deductions sounds like a Christmas miracle, it's essential to stay on the nice list by adhering to the rules. Excessive or extravagant claiming might land you on the ATO naughty list.
Don't let the sleigh stop here! When in doubt, seek our guidance as tax professionals and accountants. Our expertise will ensure that you navigate the twists and turns of tax laws while maximizing legitimate deductions.
Ready to sleigh your Christmas party tax game?
Click HERE to book a FREE online meeting with our tax experts and ensure your holiday season is merry and bright, financially speaking!
As the stockings are hung and the mistletoe readied, remember: ‘tis the season to celebrate responsibly and deduct judiciously. With these insights, your Christmas party can be more than just a jolly good time—it can be a strategic business move. Happy planning, and may your deductions be merry and bright!
Resources