Christmas tax checklist
It's that time of year again - what to do for the team Christmas party, customer gifts, gifts of appreciation for your favourite accountant (just kidding!). Here are our top tips for a generous and tax effective Christmas season:
The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. For example if you take your client out or entertain them in any way, it's not tax deductible and you can't claim back the GST. However, if you send your customer a gift, then the gift is tax deductible as long as there is an expectation that the business will benefit. Why not deliver the gift yourself to your best customers and personally wish them a Merry Christmas. Regardless of what it is this will have a much bigger impact than receiving via post or courier.
If your budget is tight it's better to focus on the customers you believe deliver the most value to your business than spending a small amount on every customer regardless of value.
Christmas is expensive. Some businesses simply can't afford to do much because cashflow is too tight. Where possible take advantage of any tax benefits or concessions you can.
The best way to avoid tax on your work Christmas party is to host it in the workplace on a workday. This way Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee's place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after over indulging in Christmas cheer, the ride home is exempt from FBT.
If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way you won't pay FBT because anything below $300 per person is a minor benefit and exempt. Be careful though as the $300 includes all the costs of the event e.g. meals, drinks, entertainment, etc.
If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. So, if the business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party.
The minor benefit threshold for FBT is $300 per person so anything at or above this level will mean that your Christmas generosity will result in a gift to the tax office as well, at a rate of 49%. To qualify as a minor benefit, gifts also have to be ad hoc - no monthly gym memberships or giving the one person multiple gift vouchers amounting to $300 or more.
Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is subject to the superannuation guarantee.
Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn't drink, chocolates to a health fanatic, or time off to someone with excess leave, isn't going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a uniform gift.
Most importantly, enjoy the holiday season with family and friends and be assured that the O'Brien team will be here in the New Year to assist with all your business, tax and compliance issues. Season's Greetings!