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A guide to celebrating the festive season while staying compliant with the ATO's guidelines.
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How businesses can stay compliant with Christmas expenses
22 November 2024
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12 minute read
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As the festive season approaches, many businesses are gearing up for celebrations, from planning parties to buying gifts for employees and clients. However, with all the excitement, it’s essential to remember that the ATO has specific guidelines on what expenses can be claimed.
A lack of understanding in this area could lead to unexpected tax issues, so businesses should take a few steps to ensure they stay compliant and avoid falling into the ATO’s Christmas tax trap.
1. Christmas party expenses: Know when FBT applies
Christmas parties are a great way to reward employees and celebrate the year’s achievements. However, not all expenses related to these events are tax-deductible. Parties held on business premises during a working day, and costing less than $300 per employee (including GST), may be exempt from Fringe Benefits Tax (FBT). This exemption only applies if the party cost is considered a 'minor benefit' and the event is not an entertainment reward.
However, if you hold a party offsite or invite clients, the rules change. Any portion of expenses for employees or their families exceeding $300 per person may attract FBT, while client-related expenses are non-deductible. To avoid issues with the ATO, ensure you track expenses carefully and remember the $300 threshold when planning your celebrations.
2. Be smart with gift-giving
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Gift-giving is another common festive expense and the ATO provides guidelines on what is and isn’t deductible. Gifts under $300 that are non-entertainment related (e.g., wine, hampers) are generally exempt from FBT and tax-deductible, making them a safe choice for employees and clients alike. However, if you’re giving entertainment gifts—such as event tickets or holidays—the tax treatment changes. These gifts aren’t deductible even if they fall under the $300 limit.
For employee gifts, entertainment items over $300 are subject to FBT, which is an added cost for the business, although they remain tax-deductible. When considering what to give, remember that simple, non-entertainment gifts will have the least tax complications and can still be a meaningful gesture.
3. Keep good records and capture receipts efficiently
Keeping good up to date detailed accounting records and copies of receipts is crucial for accurate tax reporting, but it’s often overlooked in the holiday hustle. Thankfully, the rise of cloud-based accounting tools like Xero and Hubdoc has made it easier than ever to track expenses in real time. By simply photographing receipts and uploading them, businesses can ensure they’re documented and accessible to accounting teams, helping them stay organised for tax purposes.
When it comes to events and gifting, keep a register of attendance and details about attendees. This will help you to justify accounting and receipt information should you need to provide the ATO with further information or find yourself in the midst of an ATO audit. Sound reliable systems are essential when it comes to business accounting.
4. Seek professional advice if needed
Holiday expenses often fall into complex tax territory. Consulting with an accountant or tax professional can help you understand ATO requirements, ensuring compliance without sacrificing your holiday spirit. Whether you’re a small business or a larger organisation, a clear understanding of allowable expenses will help you keep costs in check and avoid unexpected liabilities.
With a bit of planning, businesses can celebrate the season while staying financially and tax-compliant. By following these guidelines, you can keep your team happy and your books clean—making for a smoother holiday season and a solid start to the new year.
Some common questions I am asked by clients during this time of year include;
1. What Can I Claim as a tax deduction?
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Work-related expenses (e.g., uniforms, tools, travel).
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Home office expenses (e.g., utilities, internet, equipment depreciation).
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Professional development costs.
Tip: Deductions must directly relate to earning your income.
2. Can I deduct entertainment costs?
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Generally non-deductible, but there are exceptions:
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Staff Christmas parties under $300 per person may qualify for FBT exemptions.
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Client gifts are deductible if modest and business-related.
3. How do I handle cryptocurrency for tax?
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Cryptocurrency is treated as property, not currency. Key considerations:
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Report capital gains or losses for transactions.
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Maintain detailed records, including dates, amounts, and transaction purposes.
Warning: Poor record-keeping can lead to penalties during audits.
4. When should I register for GST?
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Businesses must register for GST if turnover exceeds $75,000 annually ($150,000 for not-for-profits).
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Voluntary registration is possible and may benefit startups claiming GST credits on purchases.
5. Can I claim car expenses for work?
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Yes, if the car is used for work purposes (excluding travel between home and work).
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Methods to calculate deductions:
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Cents-per-kilometer (up to 5,000 km annually).
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Logbook method for actual costs and distances traveled.
Coco Hou, chief executive, Platinum Accounting Australia
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