THOUGH THE FESTIVE SEASON and its excesses feel far behind us, it’s only now that many agencies are accounting for their holiday expenses. Client Christmas party? Tick. Landlord gifts? You know it. Company Christmas party? That’s there too. How much can you claim? Natalie Hastings has the answers.
Rather than nursing a sore head over your necessarily generous seasonal expenditure, now’s the time to focus on accounting for these costs to benefit your business – and gaining a better understanding of the tax implications of gifting and hospitality. A little attention to detail now will result in a 2016-17 tax return you’ll feel more than jolly about.
CLIENT GIFTS
They’re your clients, and you love ‘em – so you treated them to gifts over the holiday season. That makes good business sense and good tax sense, too. Gifts to clients are, broadly speaking, tax deductible, giving rise to GST credits.
If your gift will promote your business and create goodwill – leading to further repeat business or referral custom – you’re free to claim away.
Note that client gifts should not be subject to fringe benefits tax, and that you cannot claim deductions or GST credits if gifts relate to entertainment.
TEAM GIFTS
Your team are worth celebrating with presents! Gifting, however, can be complex in terms of tax. Should you give your team a gift worth less than $300, this cost would generally be exempt from fringe benefits tax. Gifts in excess of this amount are generally subject to fringe benefits tax in the hands of the employer – regardless of whether they’re given at a Christmas party or not. Not all is lost, however; employers can often claim deductions and GST credits for the cost of these gifts. The main exception is where a gift relates to entertainment (such as tickets to the tennis or the theatre). Entertainment gifts are considerably more complex to handle in terms of accounting, so consult with your agency accountant for more details on your circumstances.
Small gifts given to your team irregularly throughout the year, with a value of less than $300 including GST, are described as minor benefits. These include bottles of vino, hampers, pens and vouchers – but exclude entertainment. These staff gifts are tax deductible and GST creditable to your agency, and exempt from fringe benefits tax – so long as they’re not given at the Christmas party.
CHRISTMAS PARTIES
Whether you host an EOFY bash or a Christmas party to write home about, the costs associated with functions are classed as entertainment and thus subject to fringe benefits tax rules. When accounting, be sure to include function costs including food, drinks, venue hire, transport, gifts for your team and entertainment (Instagram booth, we’re looking at you!). Timing matters, too, when it comes to our friends at the ATO. If your Christmas function is held on a working day on-site, the costs will be exempt from fringe benefits tax. Parties costing less than $300 per head are exempt from fringe benefits tax in most cases, but they’re not tax deductible or GST creditable. And did you know that partners of employees also have their own $300 allocation? There’s another reason to brighten up your next staff party – more partners equals less real estate work talk!
TRANSPORT
Have you been extra-lovely to your team, offering the cost of taxi fares to and from festivities? The cost of this transport will count as part of the $300 per head limit if the function is off-site, but is exempt from fringe benefits tax if held at your premises.
COFFEES, MORNING TEA AND THE REST
Refreshments for your team is a grey area with the ATO – and a lot of busywork for you in terms of collecting receipts, too! Often it’s less expensive and easier to purchase a quality coffee machine for your office, allowing your team to caffeinate at will.
BUSINESS TRAVEL EXPENSES
Have an employee away for six or more consecutive nights? Ensure you use a diary to record all business activities completed before your travel ends. You’ll need to record the nature of business activity, the date and approximate time it began, how long it lasted and the location where it took place. If you are mixing business and pleasure, you must exclude private expenses from any claim made.
Whilst working out fringe benefits tax and GST credits on the purchases you’ve made for clients, staff and business travel isn’t a bundle of fun, they’re certainly worth getting right – and useful for planning 2017’s festivities, too. Tax-effective treating has never balanced better.
