Small business accounting tips for Christmas parties
As the calendar year winds down and our attention turns to the festive season many small businesses are eagerly planning and looking forward to the end of year celebrations with their colleagues.
Without trying to sound too down on the idea, a word of caution needs to be shared with all business owners. Splashing out on a lavish Christmas party is often not a tax-deductible expense, both for GST and income tax purposes. In fact, your Christmas party may even be subject to the dreaded Fringe Benefits Tax if not handled correctly.
Working as small business accountants in Surry Hills we have seen this happen many times. So here are five key points to ensure you are able to celebrate Christmas and the years' achievements without unknowingly inviting the taxman along.
The cost of holding an on site Christmas party is generally not tax deductible nor can you claim the GST. The good news is that an on site party is not subject to FBT.
To be able to claim the on site party expenses, it must be held on site for staff and clients only and involve a light meal or finger food and must not include alcohol.
Christmas parties held away from your business premises are not subject to FBT if the cost per person is less than $300.00. These expenses are not tax deductible nor can you claim the GST.
The most tax effective way to reward staff is with a non-entertainment gift. That is flowers, perfume, gift vouchers and so on valued under $300.00. These expenses are fully tax and GST deductible and not subject to FBT.
Providing staff with entertainment related gifts such as theatre, movie or sporting event tickets is considered as entertainment and these costs if kept under $300.00 are not subject to FBT, but neither are you able to claim a tax deduction or GST credit for such expenses. If they exceed $300.00 pp then the expense is subject to FBT.
As you can see from these few tips, this is a rather complex and often ignored area of small business. We suggest you seek advice specific to your businesses situation from your trusted small business accountant to ensure your business doesn't end up with a post Christmas party financial hangover.