With the end of year fast approaching, many businesses are already planning virtual Christmas parties for staff and clients, and even organising online gifts for employees. Businesses are likely to create virtual events using paid online platforms in order to socially distance. In terms of gifts, these are likely to be bought online, and even sent on an online platform.
I am regularly asked by my clients at this time of year, what type of receipts do I need to keep and what type of expenses can I claim at tax time. With COVID pushing a lot of our activities online, the answer this year is a bit more complicated.
Unfortunately, the answer is not so simple. It really depends on where you have the party, who comes along, how much you spend, what type of gift you give, and in 2020 it also depends on what online platforms you invest in.
Given this area of tax law can be a bit confusing, I thought it would be helpful if I outlined what businesses need to think about. To start with, always remember the number “300”.
According to the ATO, Christmas parties are considered to be entertainment benefits and may attract fringe benefit tax (FBT). An organisation putting on a Christmas party will be exempt from FBT if:
- The costs associated are considered to be minor benefits. The ATO will consider the costs to be minor benefits where they are provided to employees or their partners on an infrequent basis and are not considered to be a reward for services;
- The costs are less than $300 per person including GST; and
- The Christmas party is undertaken on the business premises or online, on a working day.
The ATO states that if employee family members come along and the cost per person is greater than $300 including GST, then FBT will apply to the portion that is over $300 and the business will be able to claim a tax deduction and GST credit for this amount as well.
If clients attend the virtual or in-person shindig, then they are not subject to FBT, but the business can not claim income tax deductions or GST credits on their share of the cost.
If the Christmas party is held off the business premises, then the rules change slightly. While staff and their families are subject to the same tax treatment, if clients attend, regardless of their cost, they are not subject to FBT and the business can not claim any tax deductions or GST credits.
The other area of interest for businesses at the end of the year is gifting.
Many businesses like to thank staff with a gift at the end of the year.
If the gift is considered a minor benefit by the ATO then no FBT is applicable. To be minor the gift must be less than $300 including GST and not an entertainment gift.
Entertainment gifts have different tax implications. These include tickets to performances, the theatre, sports events or even a holiday. As long as they are less than $300 inclusive of GST, these gifts are not subject to FBT and the business can’t claim a tax deduction or GST credits. If the gift is more than $300 including GST per employee, then FBT is applicable and the business can claim a tax deduction and GST credits.
Gifts for clients are generally tax deductible, however, I do recommend keeping spending to a reasonable level, this includes placing or sending online purchases.
Clarifying this for businesses helps them to make the right bookkeeping entries and avoid any nasty surprises at tax time.
Coco Hou, CPA, Managing Director, Platinum Accounting
