The silly season can be tricky to navigate for businesses, regardless of your industry. While some may be winding down for the year, others might be kicking into high gear. However, there is some holiday tax cheer surrounding this season that could put you in a better position come tax time.

Here are three tax tips you could be applying over the holidays and how to avoid being on the ATO’s naughty list.

Holiday tax tip 1: Give gifts to your employees

Giving gifts to your employees is not only a great way to boost staff morale and make them feel valued, it can also have some tax benefits.

Gifts under $300 (Goods and Services Tax [GST] inclusive) can be tax deductible, provided it’s not classified as entertainment, is an infrequent occurrence, and is not provided as a reward. This gift threshold applies for each staff member. 

What employee gifts are tax deductible? 

Some non-entertainment gifts to consider include:

• Consumable gifts, such as a bottle of alcohol, hampers or groceries

• Gift vouchers

• Food items, such as chocolates or cookies

• Beauty products

• Games and computers

It’s important to note these tax deductions are not applicable to gifts made to sole proprietors and partners in a partnership as you are not considered an employee.

What employee gifts are not tax deductible?

Entertainment gifts to avoid include tickets to sporting events, movies, musicals or theatre shows. Holiday flights and accommodations as well as club memberships are also considered entertainment gifts.

While you can claim some deductions on non-entertainment gifts more than $300 (including GST), Fringe Benefits Tax (FBT) is payable on the excess.

To be on the safe side, chat to your accountant or business advisor before buying your gifts. Our team at McNamara and Company are here to help.

Holiday tax tip 2: Send gifts to customers, active or prospective clients

Sending a little something over the holidays to clients or prospective customers is a great way to build and strengthen relationships. It can also promote great customer loyalty. Add in the tax deductions that could be available, and it can give you a positive return on investment on multiple fronts.

Client and customer gifts can be tax deductible if they are designed to:

• Promote or advertise your business

• Generate goodwill between your business and clients

• Encourage future business opportunities

What gifts are tax deductible?

Tax deductible client gift ideas could include:

• Bottles of wine or alcohol, or cartons of beer

It’s important to know, if you enjoy this with your client it could be considered entertainment and not be tax deductible

• Gift vouchers to retail or grocery outlets

• Fruit, food or relaxation hampers

• Flowers

• TV sets or computers

• Gardening equipment

What isn’t tax deductible?

There are some rules to be wary of to ensure your gift isn’t classified as entertainment. Your gift could be classified as entertainment (and not be tax deductible) if it is:

• Delivered by way of food, drink or recreation, such as a glass of champagne or a meal

• Accommodation or travel in connection with providing entertainment

• Tickets to sporting events, movies, musicals or theatre shows

• Hired entertainers or sporting equipment

Gifts provided for personal reasons, such as providing a bottle of champagne to a family member, is not considered a client gift and could also be excluded.

If you’re unsure, obtain taxation advice from your business advisor or accountant prior to buying gifts.

Holiday tax tip 3: Host an employee Christmas or holiday party

Celebrating with your employees is a great way to celebrate the year that was, bring your team together and boost team morale as well as show your appreciation. 

Although the ATO considers parties entertainment, there are cases where your Christmas party can be Fringe Benefits Tax (FBT) exempt or where tax deductions and GST input credits are available. 

When a party can be FBT exempt?

Generally speaking, if your Christmas party is held on your work premises and on a work day and only with employees attending, it could be FBT exempt.

Prefer to celebrate off-site? If the food and drink per person is less than $300 per person, no FBT could be payable. However, it could apply if food and beverages exceed the $300 per person threshold. While the FBT may apply for employees and family members, it is not applicable for any clients that might be in attendance.

For more information, we also recommend viewing the ATO’s website which goes into detail around FBT and entertainment rules. It also provides a handy comparison table.

When are tax deductions and GST credits claimable?

Tax deductions and GST credits are not claimable if a FBT exemption applies, and you generally cannot do both. 

As there can be grey areas when it comes to Christmas parties, it’s best to check your plans with your accountant or business advisor to ensure you’re not caught out.

Feeling some Christmas panic?

Please call 03 9428 1062 or email admin@mcnamaraandco.au