With Christmas and the festive season fast approaching, our attention turns to planning parties and gifts. The trap for most business owners is false understanding that these expenses are generally tax deductible. Unfortunately, they are not and more importantly they could actually cost the business more if caught by the Fringe Benefit Tax (FBT) regime.
As a rule of thumb, entertainment is generally not deductible unless FBT is paid. Some examples of entertainment include:
- Meals and drinks, cocktail parties and social functions such as Christmas parties
- Tickets or vouchers for sporting or theatrical event, sightseeing tours and holidays
Minor FBT exempt benefits
A minor benefit is a benefit that has a value of less than $300. The other main criteria is that ‘the benefit is provided infrequently and irregularly’. But remember that if a benefit is exempt from FBT, the expense cannot be claimed as an income tax deduction, nor can you claim any GST credits.
As per above, work Christmas parties falls in the entertainment category. Christmas entertainment up to the value of $300 for each employee (and their spouse) is generally exempt from FBT. So throwing a party where the cost per head is less than $300 should escape the FBT.
The ATO’s guidance also allows for you to provide a gift to each employee of up to $300 which is considered separately to the $300 limit for the Christmas party.
You can claim a deduction for the cost of gifts provided to clients and customers if they are incurred with the purpose of generating future business opportunities. You need to demonstrate that the expenses are incurred with the intention of generating future assessable income.
The main exception is where the gift is classified as ‘entertainment’ in which case you should refer to our guidance above.
If you have any queries regarding the above expenses and FBT, we encourage you to get in touch with your Altitude Advisor.