Entertainment Expenses for Businesses

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Entertainment expenses refer to costs incurred by a business for entertaining clients or staff members. According to the ATO, such expenses can be deductible, but only if they meet certain conditions.

To qualify as a deductible expense, entertainment costs must be directly related to the business and incurred while generating assessable income. Additionally, the expenses must not be lavish or extravagant.

Examples of deductible entertainment expenses may include business lunches or dinners, sporting events, and other social outings that are primarily focused on conducting business. However, expenses such as family outings, personal events, and entertainment unrelated to business are not deductible.

It’s worth noting that there are certain limitations to the deductibility of entertainment expenses. For instance, any costs incurred for providing entertainment to employees may be subject to fringe benefits tax (FBT). Similarly, expenses that exceed the entertainment limit of $300 per person may not be fully deductible.

Here’s an example to illustrate how entertainment expenses work in practice. A software development firm hosts an event to launch a new product, inviting its clients and staff members. The cost of the event is $10,000, and there were 50 attendees, including 20 clients. As per the Australian taxation law, the company can claim a deduction for the cost of the event, but it must apportion the expenses between business and private use.

The firm may only claim the costs relating to the 20 clients as a deductible expense, as this expenditure was incurred directly while generating assessable income. Additionally, the costs relating to the employees may be subject to FBT. The remaining expenses not meeting the conditions for deductibility may not be claimed as an expense on the company’s tax return.

In conclusion, businesses should ensure that they understand the rules surrounding entertainment expenses to avoid any potential issues with the ATO. If you are a business that incurs entertainment expenses and would like more information, please contact our office at 03 9973 5905.

Gifts to Employees and Clients

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Gifts to employees and clients are a common practice for businesses. However, it’s important to understand the taxation implications of such gifts.

According to the ATO, gifts provided to employees are considered a form of remuneration and are subject to fringe benefits tax (FBT) if the value of the gift is more than $300. If the gift is under $300, it is generally exempt from FBT. Gifts that are considered ‘minor and infrequent’ are also exempt from FBT, provided they are not given as a reward for services performed by the employee.

Gifts provided to clients, on the other hand, are advertising or promotional expenses and are generally tax deductible.

It’s important to keep proper records of gifts provided to staff and customers, including the date, recipient, nature of the gift, and the cost. Failure to maintain proper records may result in penalties or fines.

In conclusion, while providing gifts to staff and customers is a common practice, it’s important to understand the taxation implications and comply with the guidelines set by the ATO. By doing so, businesses can avoid penalties and fines and maintain good relationships with their staff and customers. If you require more assistance on this matter, please contact our office at 03 9973 5905.

hosting-christmas

Hosting Christmas parties – what you can claim

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The festive season is just around the corner and if you are an employer you may be about to host – or you may already have hosted – a Christmas party for staff to celebrate the year’s achievements. If so, it is a good idea to know about your tax obligations and health and safety regulations when it comes to hosting a party for your team.

End-of-year parties are a great way to celebrate and to thank staff for all their hard work during the year. If you do host a party, make sure you know your obligations. We look here at the tax implications for hosting parties, and for giving gifts. If you are in doubt, please contact our office so that we can help you know what could be exempt, leaving you free to enjoy the festivities safe in the knowledge that you have things covered.

Tax obligations when hosting Christmas parties

From an income perspective you may be thinking in terms of how to allocate the costs of a Christmas party. The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to fringe benefits tax (FBT). Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. There is no separate FBT category for Christmas parties. Any fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.

Exempt benefits – minor benefits

The good news is that the provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.

“Employers should note the ATO’s view to the application of the minor benefits exemption to Christmas parties and gifts. According to the ATO, the minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.”

Exempt property benefits

Other costs (such as those for food and drink) associated with Christmas parties are exempt from FBT provided they are incurred on a working day, on your business premises and any food and drink is consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party, if not otherwise exempt under the minor benefits exemption.

Gifts provided to employees at a Christmas party

The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Health and safety at Christmas parties

While your staff may be “off the clock”, you will probably still be responsible for their health and safety. Here are some suggestions to help your workplace celebrate safely:

  • Remind staff, perhaps in an email before the event that while the party is a time to relax, it’s still a work function. You could gently remind staff to be careful if they choose to drink alcohol.
  • Make sure that any alcohol is served responsibly and that there’s enough food and non-alcoholic drinks available, too.
  • Help your staff get home safely after the event. You could organise a bus, pre-order taxis, or arrange for designated drivers.

Speak to us

The FBT year runs from 1 April to 31 March. You may not be ready to prepare your FBT until after 31 March, but you may be preparing accounts now in order to allocate the costs of the Christmas party. Speak to us for further information.