Beware of the ATOs Christmas Grinch

Oct 24, 2022

There are tax-effective ways to spread the Christmas love and spirit, so don’t get caught out this year by the ATO’s Christmas Grinch.

I thought I would share with you exactly what the rules are so you have plenty of time to plan things like your Christmas party and the purchase of Christmas gifts for your staff, clients and colleagues.

The two big things to consider when it comes to the festive season cheer on offer are first, whether what you spend will be “tax deductible” and secondly, will fringe benefits tax (FBT) be payable.

It is a common myth that FBT is only for big business. Unfortunately, this is not the case and many accountants don’t discuss FBT with their clients. Don’t be alarmed, as they may be treating your expenses correctly at the end of the year when they do your tax, BUT, wouldn’t you prefer to know what the rules are? Perhaps you might do things differently?

The Christmas Party

In most cases, putting on a Christmas party for your staff, colleagues and clients will not be tax deductible, which comes as a surprise to many small businesses owners.

The only way you can claim the cost of a Christmas Party is if the party is considered a fringe benefit and you then have to pay fringe benefits tax (FBT) to the ATO.

To complicate things further, different rules also apply depending on whether you have the party at your place of work or somewhere else and whether you hold the party on a work day or on the weekend.

Christmas Gifts

There are again two things that need to be considered when gift buying. Firstly, the cost of the gift and secondly if the gift constitutes “entertainment”.

If you provide a gift to employees (and their associates) that are infrequent and irregular (eg. Christmas and birthdays) that is ‘less than $300 including GST’ and is not entertainment, then you can claim the expense as a tax deduction, claim the GST component if you are registered for GST and you will not have any FBT implications.

So what types of gifts would be considered entertainment?

  • theatre tickets
  • movie tickets
  • sporting event tickets
  • holidays
  • airline tickets

So knowing what gifts aren’t so tax effective, maybe you would prefer to give non-entertainment type gifts costing less than $300 such as:

  • skincare, beauty products, perfume
  • wines, beer, spirit
  • gift vouchers or gift cards (don’t buy a $300 gift card as it needs to be under $300 and don’t buy gift cards for places like Ticketmaster, Hoyts cinema etc)
  • Christmas hampers

Hope this information helps you plan your Christmas Party and Gift Giving without inviting the ATO’s Christmas Grinch to your business. In the meantime, here’s a Christmas Checklist 2016 to help you plan the lead up to Christmas and have a well-earned break!