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Is Your Staff Christmas Party Tax Deductible?

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Everyone loves a good end-of-the-year, holiday celebration. And after the year we’ve had, your staff deserve it. But it’s not as simple as getting a few platters of sushi and throwing open the bar. At least not when it comes to your taxes.

Many Australian businesses mistakenly believe that their staff Christmas party is automatically tax-deductible. Sometimes that might be true. Other times it might not. And in some circumstances, it could be subject to Fringe Benefits Tax (FBT).

So, before you toss the company credit card down for the bar tab believing your staff Christmas party is tax deductible, here’s what you need to know.

Is Your Staff Christmas Party Tax Deductible?

Whether or not the expenses of your staff holiday party are tax deductible or subject to FBT depends on when it’s held, where it’s held, who attends and how much you spend. Likely it’ll be a combination of each of those things. Here are the broad rules.

General Rule

The cost of your staff Christmas party is income tax deductible to the same extent that it’s subject to FBT. Conversely, if you have costs that are exempt from FBT then you can’t claim those as an income tax deduction. So, if you’d like to not pay taxes on your company party, the first step is to try to work it into an FBT exemption. Because unless there’s an exemption, it’s likely that FBT will apply when you putting together a company Christmas party.

When it’s at your office (or property)

Exempt Property Benefits

If you hold the party on your business property, during the working day and only staff attend, then it will be exempt from FBT under the exempt property benefits. But this exemption won’t apply to friends, family or associates.

Minor Benefits Exemption

In the same vein, if you have a Christmas party on your premises and you pay less than $300 per person, that amount will generally be exempted from FBT. This can extend to friends and family as well (as long as it stays under $300 per head). This is the minor benefits exemption.

When it’s at another property

Minor Benefits Exemption

If you hold a party for your staff party off of the premises (so at your neighbourhood pub, or at a nice restaurant overlooking the valley) you lose the benefit of the property exemption. But you can still use the minor benefits exemption for both staff and friends and family as long as the costs don’t exceed $300 per person.

Tax Deductible

However, if the costs exceed the $300 threshold per person, the amounts above will likely be tax deductible. So, if you spend $350 per person on a fancy meal with champagne at a local venue, you can claim back $50 per person. And this applies to friends and family as well.

What about clients?

Unfortunately, the costs incurred entertaining clients are not tax deductible. So, if you decide to include clients at your company Christmas party, you won’t be able to claim the amounts that relate directly to entertaining them.What about gifts?

Staff gifts

Your staff Christmas party is a great time to give each employee a gift. And if you give them a gift that’s less than $300 under most circumstances those costs will be exempt from FBT.

It’s important to remember each gift or party is considered a separate benefit. So, you can throw them a party for less than $300 a person, AND give them a gift valued at less than $300 a person BOTH can be exempt.

Client gifts

Gifts can be a little tricky when you’re giving a to clients, however. This is because we have to decide whether the gift is actually a gift, or will be considered entertainment.

Gifts are things like a gift voucher, a Christmas hamper or a pen. But if you give something like tickets to something (whether it’s a movie, or a concert, or a flight), that’s more likely to be considered entertainment. The former are tax deductible, but the latter are not – regardless of how much you spend.

The divisions between ‘gift’ and ‘entertainment’ can be complicated, so it’s a good idea to speak to your accountant before spending money on Chrissy presents for your clients.

What if you’re a tax-exempt entity?

Tax exempt entities have different rules when it comes to Christmas parties and taxes. These are similar in nature, but have their own spin. For example, a tax-exempt entity can rely on the tax-exempt entertainment exemptions for Christmas parties, and the minor benefits exemption will only apply in very limited circumstances.

It’s best to speak to your accountant about your options if you are a tax-exempt entity.

Takeaway

How you organise your end-of-the-year celebrations and employee and client gifts can see you saving thousands of dollars in taxes (or not!). So, it’s worth taking the time to consider the best way forward before getting out the corporate credit card. You’ll be glad you did.

Get in touch if you’d like some specific guidance on how to save on tax while still having a great night of celebrations. We’re here to help.

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5 Tips for Easy Business Bookkeeping

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Cash flow is the number one issue affecting small to medium businesses right now. The Australian Securities and Investment Commission reports that poor cash flow is cited as a factor in 40% of business failures. Yet, 60% of small-business owners feel they are not very knowledgeable about accounting and finance. And many find bookkeeping difficult, overwhelming, hard to prioritise or just plain tedious.

Whether you don’t know what to do, or don’t like doing it, it’s essential that, as a business owners, you keep on top of your books. Doing this helps you to understand and manage your cash flow and keep your accounts up to date. And that puts you at less of a risk for cashflow difficulties and, ultimately, business failure.

But doing your books doesn’t have to be hard, overwhelming or even tedious. Here are five tips for easy business bookkeeping that can help you understand your cash flow and keep your business in the black.

5 Tips for Easy Business Bookkeeping

TIP 1: Schedule it in 20-minute bursts.

Many business owners put off doing their bookkeeping. Often it’s for very legitimate reasons, like a lack of time while they service their own clients. Or because it just seems confronting and overwhelming.

But the more you delay in doing your books, the more the work snowballs. And then it truly can become overwhelming (and, frankly, unbearable).

Instead, set yourself 20-minute targets. Input transactions a couple of times a week (you can even do it while you’re waiting for dinner to cook, or watching Netflix) and stick with that schedule. When you’re working consistently in short bursts you can actively manage and track your finances, including cash flow, in very little time. And it prevents that work from building up.

TIP 2: Review your reports monthly.

Reviewing your reports is part of good bookkeeping. But it’s sometimes hard to get to it. Schedule in a time once a month to take a quick look at those reports. Look for anomalies like uncategorised expenses or bank accounts that are in the negative on your balance sheet.

You’ll also want to ensure that put in all of your expenses and that your bank statement and accounting records match. And check your net profit and your cash flow statements so you can see both how much profit you made in the month, and your liquidity position.

TIP 3: Keep your business and personal finances separate.

Keeping your business and personal finances completely separate halves the amount of work that you need to do. Instead of rifling through all your accounts and pulling out the business related transactions or expenses, all the information will be contained in separate files.

If you use any budgeting or accounting software, ensure that you have one for your personal and one for your business finances as well. And maintain separate bank accounts. These steps will make your business expenses and income easier to track and your profit and loss and cashflow, easier to manage.

TIP 4: Invest in an accounting program.

Accounting software has come along in leaps and bounds. In fact, every year there are new systems. Because there are so many options now, that means that there will be a system that does the things you need at a price point you can afford.

Accounting software makes it easy to quote for work (so increase your sales) and send out invoices (so increase your cashflow management). It also makes it easy to catalogue your receipts, enter incoming payments, reconcile your accounts and generate reports. And most systems are accessible via an app on your mobile. So now you can do your books no matter where you are.

TIP 5: Hire a specialist.

When it comes to your books, the most important thing is to just get the work done. If it just isn’t working any other way, if you simply can’t find the time to do it, there are many excellent bookkeepers here in Australia, and many at quite affordable rates.

The information that you can get from your books is invaluable to understanding and managing your finances (including cashflow) and keeping your business up and running. Ignoring it, won’t make it go away. But it could end up in disaster for your business.

For more easy business bookkeeping tips, get in touch. We’re here to help.