It’s easy to spend too much at Christmas. If you are splurging on clients, to be a legitimate business expense and therefore deductible, the expense has to be related to how your business generates income. So, excessive expenses may draw the attention of the regulators and the deduction denied.
If you are hosting client functions, inviting them to lunch, or to your Christmas party, entertainment costs are not deductible.
For staff, if you really want to avoid tax on your work Christmas party then host it in the office on a work day – that way, it’s likely to be exempt from Fringe Benefits Tax (FBT) regardless of what you spend per person.
But, if you are hosting a work Christmas party outside of the office, keep expenses under $300 (GST incl.) per employee to stay under the FBT minor benefit exemption threshold. So, post Christmas party taxi travel expenses, the cost of the Christmas party itself (including meals, drinks and entertainment etc.,) will all be exempt from FBT as long as the cost is kept below $300 per employee. But, employers cannot then claim a deduction for the Christmas expenses or claim GST credits.
Christmas gifts for the team should also be kept to under $300 (GST incl.) to ensure they do not incur FBT. Employers can claim a deduction for ad hoc Christmas gifts as long as they do not relate to entertainment.
Post Christmas regrets
February is when a lot of businesses pay their Activity Statements. Avoid Christmas cashflow hangovers. Make sure you protect your position and stay on top of not just Christmas expenses but debtors, stock, and staffing costs.