Is the ATO a Christmas party scrooge?

16 December 2010

Whether you have had your Christmas party or are about to, you need to think about the impact it will have on business finances and reporting. We take a look at the implications of what you are spending this year, what you can and can't deduct – and where you are likely to incur Fringe Benefits Tax (FBT).

Your team

The big issue with Christmas celebrations for your team is Fringe Benefits Tax (FBT), which catches out many small businesses each year.  FBT applies to non-cash benefits provided by employers to their employees.  This generally includes expenses for entertainment that you provide to your team.

FBT gets tricky because there are fairly strict rules about where it applies. If you host your Christmas party at the office in work hours, it's likely it will be exempt from FBT. Take your team out for lunch or dinner, and FBT may apply if the cost of the celebrations is more than $300 per person. Invite the family members and FBT may also apply.  

Presents to staff also need to be kept under $300 per person and be one-off gifts to avoid incurring FBT. This is not included in the total cost of your Christmas party and are assessed separately.

Finally, remember that the cost of your Christmas celebrations for team members is not deductable for income tax purposes if FBT does not apply.

Entertaining clients at Christmas

If you're taking your clients out to dinner or providing any other form of entertainment for the Christmas season, you need to know it's not tax deductable. However, if your business gives them a gift then it can be deductible if the gift is given in expectation that your business will benefit, and incurred in the course of generating revenue. And of course, as it's the Tax Office scrutinising your expenses, you'll need to prove the link between the two.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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