Demystifying The Entertainment Expenses

“Understanding entertainment expenses for your staff Christmas Party and giving gifts to staffs and clients can help you sort out the holiday season without headache from ATO.”

Introduction:

Entertainment expenses by a business is one of the most confusing topic not only for the business persons also for a lot of accountants and bookkeepers. Therefore I have tried to simplify if we can claim them as deduction for business or not and what will be the Fringe Benefit Tax obligation for the business because of the entertainment expenses. The mistake in this can cost the business Fringe Benefit Tax of 47% for the business along with FBT Lodgement Obligation.

1. Staff Amenities at business Premises

If you provide tea, coffee, water and light meals then they are staff amenities and can be tax deductible and also can claim input tax credit. Even light meals and refreshment at business premises in connection to meetings, training are treated as staff amenities.

2. Business Meals at Restaurants

If you provide business meals to employees at restaurants or similar venues outside of business premises then it is Entertainment expenses. FBT Does not apply and cannot claim tax deduction and cannot claim GST Credit.

The same applies to clients and suppliers

3. Staff Christmas Party

If the staff Christmas Party is held at business premises and staffs attend then there is no FBT, cannot claim tax deduction and cannot claim GST Credit irrespective of the amount. If employee's associates (Spouse and family) attend and the cost per person is less than $300, then no FBT, cannot claim tax deduction and cannot claim GST Credit. If the cost per person is more than $300 only employee's associates part is subject to GST, Claim deduction and claim GST Credit.

If the staff Christmas Party is held outside business premises and cost per person is less than $300, then no FBT, cannot claim tax deduction and cannot claim GST Credit for both employees and associates.

If the staff Christmas Party is held outside business premises and cost per person is more than $300, then FBT applies, can claim tax deduction and can claim GST Credit for both employees and associates.

The $300 cost also includes taxi Service but does not include the gift.

If Clients attend the Christmas Party, No FBT, cannot claim tax deduction and cannot claim GST Credit

4. Christmas Gift for Employees and Client

If you give non-entertainment gifts (flowers, wine, perfumes, gift vouchers and hampers), If the price is less than $300, it is exempt from FBT and can claim deduction and GST Credit.

If you give non-entertainment gifts (flowers, wine, perfumes, gift vouchers and hampers), If the price is more than $300, FBT applies and so can claim deduction and GST Credit.

If you give entertainment gifts (sporting tickets, holidays, overseas ticket, theatre ticket), If the price is less than $300, it is exempt from FBT and can not claim deduction and GST Credit.

If you give entertainment gifts (sporting tickets, holidays, overseas ticket, theatre ticket), If the price is more than $300, FBT applies and so can claim deduction and GST Credit.

The gift is not available to sole traders and partners as they cannot gift themselves.

If you give non-entertainment gift to clients of any value, which will increase your business then no FBT applies but can claim deduction and also claim GST Credit.

If you give entertainment gifts to clients then it is not subject to FBT and cannot claim tax deduction and cannot claim GST credit.

Key Takeaways:

Here are the quick takeaways from the blog. Try to avoid FBT implication as much as possible as it increases your accountants cost and have to pay 47% FBT Tax.

• Provide tea, coffee machine and light meals to Employees rather than going to restaurant

• Christmas parties to be better to held at business premises

• If you do your Christmas party away from business premises make sure it is below $300.

• Give Non-Entertainment Gifts to Employees and Clients.