So, you’re taking your best clients out to lunch and buying presents for the others, as well as for your staff? Not to mention a big office Christmas party at the new restaurant around the corner. It’s a tax deduction, right? Maybe not. While the festive season can be a time to really kick up the heels and celebrate – you may have a hangover when you realise that entertainment spend may not have been deductible or triggered a sizable Fringe Benefits Tax (FBT) implication.
FBT laws and the issues around entertainment-related expenses can be complicated, so it’s important to understand what’s OK and what isn’t first. To make things more complicated, the laws may also change according to how often you hold events, where you are holding an event, how much you intend to spend per person, and who is attending such as employees or clients.
Here’s some important points to remember.
- While you can buy a client a bottle of wine as a goodwill present at the end of the year while still maintaining a tax deduction, a Christmas lunch out with wine at a restaurant may be a problem as that could be seen as offering entertainment and therefore not tax-deductible. However, offering a weekend away or tickets to the Rolling Stones would be considered entertainment and therefore not deductible.
- Often employers intend to give staff gifts that may be viewed as a minor benefit like Christmas hampers, gift vouchers, or chocolates. When considering what gifts to provide keep in mind each benefit provided to your employees must be under the value of $300 to avoid possible FBT implications. However, it must be noted the nature of the benefit provided must be considered as all entertainment-related expenses are not deductible to the employer regardless of the exceeding this threshold or not.
- The cost of providing a Christmas party is income tax deductible to the extent that it is subject to FBT. Any costs that are exempt from FBT (like minor benefits and taxi vouchers to take employees home) are not tax deductible as they relate to providing entertainment.
- If food and drinks are provided to current employees on the business premises with a moderate cost during a usual business day it is more obvious that it is a genuine work event and there’s unlikely to be any FBT for the employer however considerations must be made in order to determine if the expense is still tax deductible.
- Most parties, however, occur off-site which can make the claim harder to prove. But as long as the costs per employee are limited to less than $300 for food and drinks and it is a genuine end of year event for employees, this scenario is unlikely to attract FBT for the company as long as it is a one-off event.
- Christmas parties that do not trigger FBT for employee related expenses are not generally tax deductible. The tax consequences of having clients accompanying you at these events could lead to other tax implications.
For more information go the ATO page on entertainment: