ATO and Christmas Parties

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This is the time to be jolly, but unfortunately this jolliness doesn’t come with a tax deduction. First there is a distinction between holding the Christmas Party at your premises or at some other location. For more information, please see our client newsletter on this issue or contact our office.

Gifts to business associates are tax deductible. Hurray! Gifts to employees, though, are only tax deductible if they are ‘minor benefits’, i.e. cost less than $300. With Christmas gifts the cost of the gift is separate from the cost of the Christmas Party, so while the party expense is not deductible, the gift may be.

May be??? That is because Christmas gifts under $300 are ‘exempt employee benefits’ which may or may not be tax deductible. Gifts to employees that have a value of less than $300 are exempt employee benefits (minor benefits). As the ATO frowns on anyone having fun, gifts that have the character of entertainment are NOT tax deductible, even if minor. The ATO clarifies this by giving examples: gift vouchers or tickets for theatre, movies or restaurants are entertainment, and whilst not subject to FBT, they are not tax deductible. A bottle of champagne, though, is apparently not very entertaining for the ATO, as that IS deductible, provided it is not consumed ‘on the spot’ that IS entertainment.

I hope this doesn’t put you off your Christmas cheer...