End Of Year Christmas Expenses & Their Tax Deductibility
While your business may not be planning an extravagant bash, a Christmas party, and Christmas Expenses may still be on the menu for your hard-working employees.
Planning your end-of-year event for the office with a little knowledge of the potential tax deductions you could be able to claim back can make the giving a little sweeter this year.
You can take advantage of the $300 (including GST) minor benefit and exemption rule to hold a Christmas Party for your current employees and their spouses. To do so, the party would need to be held on the premises of the business and during a business day. If your costs are below $300 per person, FBT will not be incurred, but you will not be able to claim tax deductions or GST credits.
However, fringe benefits to employees over $300 will incur fringe benefits tax (FBT). This means if the Christmas party that you hold is priced at over $300 per person (for the cost of food and drink consumed by employees and spouses) at your in-house party, you will incur and need to pay FBT on the expenses of your employee’s spouse or family members only.
If the Christmas party is being held at a restaurant or venue, you will not need to pay FBT if the costs remain under $300, as it is considered a minor benefit. If the costs rise to over $300, you will need to pay FBT for your employees, their spouses, and their families.
You may also provide your employees with transportation to the Christmas party. Taxis provided to an employee will attract FBT unless the travel is to or from the employee’s place of work. If the party is held off-premises and you pay for your employee to travel by taxi to the venue and their home after the event, only the first trip is FBT exempt under Christmas Expenses.
The second trip may be exempt under the minor benefits exemption if you adopt value its meal entertainment on an actual basis.
You can also provide transportation to the venue, such as buses. These costs will form a part of the total meal entertainment expenditure and be subject to FBT. If the threshold is not breached, it may fall under the minor benefits exemption.
Christmas Expenses and Meal Entertainment?
If your Christmas party does not include recreation, you may choose the value of food, drink, associated accommodation, or travel as ‘meal entertainment’. This potentially allows you to pay less FBT by claiming meals and drinks consumed in a restaurant/cafe or provided at a social gathering.
The taxable value of the meal entertainment can be made using a 50:50 method, 12-week method, or actual method.
- 50:50 method - a 50:50 split where the taxable value is 50% of your total expenditure when providing entertainment to your employees, associates, or clients during an FBT year.
- 12-week method - involves tracking the taxable value of each fringe benefit and is based on the percentage of meals and entertainment provided to employees as registered in a log for a 12-week representative period.
- Actual method - best used when the exact number of attendees at most meals and entertainment provided or the total value of all meals and entertainment during the FBT year is based on actual expenditure.
Want to know more about how you can make this merry time of the year more FBT tax-friendly to your business? Please consult us about how we can make your Christmas parties and employee benefits work best for your tax purposes, see how the ATO treats Christmas Expenses here