We all hate doing party-pooper taxes. But, if you knew how to make that office Christmas party tax deductible, it may just be more fun.
As Christmas draws closer, small business owners begin to plan exciting celebrations and staff gifts to bring the working year to an end. As most business owners know, this is the time to begin organising, planning and budgeting for the work Christmas parties, but these functions do not have to be another expensive burden on the company’s budget.
So how does a business manage an extravagant end-of-year Christmas party without racking up an onerous expense bill?
What often goes unknown is the fact that small businesses are eligible for tax deductions in particular expenses. The key is finding the right steps to eliminate costly payments and maximise this tax deductibility. To ensure businesses are benefitting most during this crazy time of the year, it is important to understand what expenses are allowable for tax claims and avoid falling into the tax law trap that can leave business owners with an unpleasant surprise.
Here are some really valuable tips in claiming business entertainment expenses in a way that will benefit employers the most.
Exercise the ‘minor benefit’ rule
In general, the provision of entertainment expenses at Christmas party events are not allowable for income tax deduction, subject to the Fringe Benefits Tax and its onerous lodge forms and paperwork. Under the ‘minor benefit’ rule however, an expense no more than $300 becomes a notional taxable value that isn’t subjected to the FBT payments.
This is a great advantage for small businesses as entertainment expenses can be tax deductible. Hosting the party during working hours on business premises can also reinforce this rule. This is of course a simple, smart way to trim those FBT bills and avoid the timely hassle involved with preparing and lodging.
Minimise the Fringe Benefits Tax
We should also look at these steps to minimise the amount of FBT payable, including:
- Asking employees to make personal contributions toward party expenses – this reduces the expenses the business itself will have to claim for tax benefits
- Rewarding staff by offering free seminars or trade shows
- Paying tax bonuses to staff in which they can pay their tax themselves
All employers would recognise that at the end of the hard-working year it is important to reward staff for their efforts and of course keep incentive to create bigger and better success for the following year. As gifts of appreciation are often infrequent and not overly excessive, it is usually acceptable for income tax deduction. Great gift ideas such as flowers, wine, perfume and gift vouchers do not fall within the FBT rules as it does not classify as entertainment purposes, meaning your business can effectively save in this aspect.
By understanding the tax laws surrounding business expenses, businesses can save a great deal of stress and worry about finances to allow a more enjoyable time of sharing, giving and rewarding staff.
John Corias is a Senior Partner at MAS Accountants,the first accounting office in Australia to cater specifically for small businesses and has been running for over 50 years.