With Christmas fast approaching many companies are already thinking about the team Christmas function or perhaps gifts for team members. With that comes the usual questions about entertainment deductions and tax.
We’ve put together a helpful guide to get you through the silly season.
Christmas Lunches for Clients
As with all customer entertainment, this is 50% deductible.
Christmas Gifts for Customers
The cost of any gifts to your customers is normally fully deductible. The exception comes in the form of food or beverage where the deduction is usually limited to 50%.
Christmas Parties for your Team
Whether you hold your team party on or off the premises, you’ll only be able to claim 50% of the cost of food and beverage. If you have entertainment in the form of a band or DJ, that will only be 50% deductible as well.
We’ve noticed that some end of year functions are becoming more activity based and less oriented around the dinner table. In some instances, the company will set a maximum contribution and employees also pitch in with remainder of the cost. If this is the case, you would deduct the total contribution from team members before calculating the amount to be claimed as a deduction.
If you give your team members cash bonuses at Christmas, this is considered remuneration and PAYE income tax would apply.
Food and Wine as Gifts to Team Members
This is a little more complex. Unlike the Christmas Party which falls at a fixed time or may be part of an employee’s work duties, gifts of food and wine can be consumed at any time by the employee and so this constitutes a fringe benefit.
You can claim the full cost of any gifts so long as you pay Fringe Benefit Tax on the value.
However, there is an exemption. You are entitled to spend up to $300 on any team member in every quarter, or $1200 per team member in each year.
There is an absolute threshold of $22,500 for the whole company in any given year. If you go over this amount, you’ll need to file a FBT return for the full amount (without any deduction for the threshold).
You can read more about the detail here.
Entertainment can be an uncertain area. The usual commonsense rules around keeping receipts and perhaps recording the nature of the expense on the receipt apply.
As always, if you aren’t certain how to treat a particular expense, or want some advice on expenditure, just pick up the phone and call us.