The ATO is clamping down on “Christmas claims” – business expenses during the holiday season – warns tax specialist Coco Hou. Hou states that it’s imperative for businesses to keep tax obligations in mind when they’re preparing Christmas gifts and parties for clients and staff.
Additionally, she mentions how most clients are either unaware or uncertain of which receipts they need to keep and the range of expenses they can claim during tax season.
Hou states that “the answer is not so simple and really depends on the type of expense” regarding which expenses a business can claim for any Christmas-related activities.
“When it comes to celebratory activities, it depends on:”
- Who comes along
- Where you have the Christmas party
- What type of gifts you give and to whom
- How much you spend
The ATO states that Christmas parties are classed as an entertainment benefit – meaning they attract fringe benefit tax (FBT).
That said, your party would be exempt from FBT if the related costs are classed as minor benefits – applying only if they were provided to partners or employees on an infrequent basis.
This means the costs would be considered if:
- They weren’t seen as a reward
- The Christmas party happens on the business premises on a working day
- It was less than AUD 300 per person
The ATO also mentioned that if an employee attends the party with their family members and the cost per person is higher than AUD 300 (including GST), FBT would apply to the portion that’s over AUD 300. Then, your business would be able to claim a tax deduction and GST credit for the amount.
The same principle applies for gifts, Hou states – “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 AUD 300 including GST and not an entertainment gift.”
“As long as they are less than AUD 300 inclusive of GST, these gifts are not subject to FBT. If the gift is more than AUD 300 including GST per employee, then FBT is applicable and the business can claim a tax deduction and GST credits.”
When it comes to keeping receipts, Hou also mentions that there’s no reason why your company can’t use AI-based systems such as Xero or even cloud-based software to assist you.
All you need to do is “take a photo of the receipt and upload it, and it is saved in the cloud capable of being viewed by colleagues and accessed by your accounting professionals,” Hou explains – mentioning why it’s so crucial for tax reasons.
Partner with Advisory One
Need assistance planning your Christmas party and want to know which expenses are exempt from fringe benefits tax? Work with our team of chartered accountants to guarantee you get the right tax deductions – get in touch at 02 6324 5888 to learn more.
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