ACCOUNTING NEWS      -      ISSUE 1

TAX OFFICE TO RAIN ON XMAS PARTIES

Business has been warned the Australian Taxation Office will be playing Scrooge, with strict rules governing Christmas presents from bosses.

Some accountants/employers wrongfully believe a Christmas function, whether held internally or externally, qualifies as a minor infrequent exemption if it costs less than $300 a head.

This is wrong. If we are citing the tax office directive that benefits given to employees ahead of Christmas should be grouped and added up, there are current cases where the total value of an end-of-year benefit exceeded $300 including GST.

If a Christmas function and, say, a hamper is valued at more than $300 a head, then it attracts fringe benefits tax. However, timing these giveaways could represent enlightened management.

The ATO has indicated that if the hampers are given two weeks before the actual Christmas party, then the hamper and the function will be treated as separate benefits. This will achieve a better tax outcome for the employer.

Non-entertainment gifts such as perfume, pens, flowers and the like valued at less then $300 are tax deductible, attract no FBT and a tax credit for the GST is claimable. Buying a gift for clients, suppliers or contractors gives a trifecta no deduction, no FBT and no tax credit.

Entertainment is a tricky issue and the bottom line is that it's better to give an employee a bottle of perfume than movie tickets.

Entertainment gifts to employees under $300 bring no deduction, no FBT and no tax credit. However, those over $300 permit a deduction, slam on the FBT and give a tax credit.

Many accountants/employers are getting the $300-a-head Christmas party rules wrong despite direct statements by the tax commissioner.

You could bring in some light food and claim it as a deduction, such as Maccas or finger food. But you can't bring in the caterers and serve alcohol and claim a tax deduction.

Therefore given the confusion, business owners should be sure of their tax position before they make plans to spend for Christmas.

http://www.ato.gov.au/businesses/content.asp?doc=/content/51481.htm covers what expenses can be claimed.