What Meals, Entertainment and Travel Can I Claim This Christmas?
The silly season has arrived at a particularly alarm rate this year and whilst the end of the calendar year can bring on stress like no other – particularly for our retail clients – it also means an excuse to have *extra* amounts of fun. Christmas parties, wining and dining clients and gifting to various people is all part and parcel. We get asked what is and isn’t deductible a lot during this time of year, so here’s all your questions answered.
Key Highlights
- What’s Deductible (and What’s Not): Christmas parties and entertainment are generally not tax-deductible, nor are meals or travel tied to entertainment. However, non-entertainment gifts under $300 (like hampers or gift cards) can be deductible if given for business purposes.
- Minimise FBT & Stay Compliant: To reduce Fringe Benefits Tax (FBT), host parties at your workplace and keep individual benefits under $300. Maintain clear records—receipts, expense purposes, and attendee lists—to stay compliant and maximise deductions.
- Get Pro Help for Peace of Mind: ATO rules can get tricky during the festive season. A tax advisor can help you plan smarter, avoid FBT traps, and structure spending to keep your celebrations festive and tax-friendly.
The general rules around what’s tax deductible and what’s not when it comes to…
Meals and entertainment
You can’t claim the cost of attending functions or participating in entertainment involving food, drink or recreation. If you’re splurging on a lavish Christmas lunch with colleagues or clients, that’s coming out of your pocket. When expenditure is not eligible for an income tax deduction, a GST credit will also not be available.
Not the answer you wanted to hear? We get it—but that’s just how it is. The tax authority has pretty strict guidelines around entertainment expenses to prevent abuse of deductions. Remember: consider focusing on non-entertainment activities or gifts if you’re looking for something deductible.
Travel
Taxis home from the workplace would be deductible, whereas a taxi (or Uber, etc) home from a restaurant is considered a fringe benefit and is not tax deductible unless FBT is paid on the value of this benefit. Read more about that here.
Travel that relates to entertainment will not be tax deductible. If you’re traveling for business income purposes and you’re required to stay away from home over that period, meals and accommodation will be tax deductible.
Can I claim a Christmas party? What about gifts for clients?
Because the purpose of Christmas parties is to entertain, an income tax deduction is not available. However! Gift giving with the purpose of improving your client relationships and gaining future business is tax deductible as long as the gift chosen is not entertainment. Choose a hamper instead of tickets to the theater, for instance.
When the gift is for staff it must also be non entertainment and less than $300 for an income tax deduction. A good example of this is a $295 VISA gift card (every employee reading this nodding their head right now). Although the recipient could spend the voucher on entertainment, the gift card itself is not considered entertainment.
Anything else to know about silly season tax deductions?
The rules above apply differently to tax-exempt entities, so if you fall into this category, check the specific guidelines that apply to you.
If you’re spending $300 or more on gifting (even if it’s not an entertainment gift), it would not be considered minor and will be subject to Fringe Benefits Tax. The $300 threshold is applied per benefit. So, if an employee is provided with a $200 meal and a $250 Coles voucher at the Christmas party, they could both be eligible for the Minor Benefit exemption.
An example when FBT applies:
- You purchase a $330 meal
- We then apply the FBT Gross up calculation and FBT tax rate
- $330 x 2.0802 x 47% = $322
- We add $322 on top of the $330 meal
- With FBT you are eligible to claim a GST credit so we minus $30 GST
- $330 + $322 – $30 = $622
- $622 x 25% company tax rate = $156
- You will receive $156 income tax deduction
After the tax deduction, the total cost of the $330 meal is $467. When FBT applies, you can claim a tax deduction for the entertainment expense, FBT amount, and GST credit. This can make the cost more manageable.
For further advice and budgeting for the full cost of your Christmas celebrations, and minimising the associated taxes contact the Future Advisory team.
How to document Christmas expenses for ATO compliance?
Proper record-keeping is essential to ensure your Christmas expenses meet ATO standards while maximising your tax benefits. It’s not just about compliance – detailed records can save you headaches if the ATO audits your business.
What to Document
- Invoices and Receipts: Keep clear, itemised receipts for meals, gifts, and travel expenses. Make sure they include details like the supplier name, ABN, date, and amount paid.
- Expense Purpose: Briefly explain why the expense was incurred, e.g., “Gift for the key client to maintain a business relationship.”
- Cost per Attendee: For events like Christmas parties, calculate the cost per person to determine whether it qualifies for Fringe Benefits Tax (FBT) exemptions.
- Gift Details: Note the type, value, and recipient of each gift to ensure they meet tax-deductible criteria (e.g., non-entertainment gifts under $300).
For businesses that want to stay on top of tax planning year-round and ensure seamless documentation of expenses, explore our small business bookkeeping services.
Why Accurate Records Matter
Thorough records help you defend your claims, avoid penalties, and ensure you don’t miss out on legitimate tax deductions. For instance, if the ATO reviews your $250 Christmas hamper expense, clear documentation proves it’s a business-related, deductible gift.
Quick Tips for Staying Organised:
- Use accounting software to store receipts and track FBT calculations.
- Maintain a simple spreadsheet summarizing expenses, dates, and attendees.
- Separate personal and business expenses to avoid confusion.
Proper documentation isn’t just a chore – it’s your best tool for staying compliant and stress-free during the holiday season!
Maximizing Tax Benefits for Christmas Spending
The festive season is all about spreading cheer, but smart planning can also ensure your Christmas celebrations don’t turn into a tax nightmare. With a bit of strategy, you can minimise Fringe Benefits Tax (FBT) and make the most of tax-deductible opportunities while keeping the holiday spirit alive.
Structuring Christmas Celebrations to Minimise FBT Impact
With a little planning, you can celebrate in style while keeping FBT to a minimum. One of the most effective strategies is to host your Christmas celebrations on-site and during business hours. Events held at your workplace are generally exempt from FBT, saving you a significant chunk of change. Plus, having the party on-site lets you showcase your workplace culture while keeping things light on the budget.
Another way to reduce FBT is by limiting individual benefits to under $300. This allows you to qualify for the Minor Benefits exemption, which can make a world of difference when it comes to tax savings. Whether you’re planning meals, decorations, or small tokens of appreciation, keeping the cost per person under this threshold can help you celebrate without worrying about additional tax implications.
When it comes to gifts, stick to non-entertainment options like gift cards, hampers, or even a bottle of wine. While it might be tempting to splurge on concert tickets or fancy dinners, these are considered entertainment and generally don’t qualify for deductions. Simple, thoughtful gifts can show appreciation while staying tax-friendly.
How Professional Advice Can Optimise Your Holiday Claims
The ATO’s rules around tax deductions and FBT can feel like a maze, especially during the festive season when expenses pile up. This is where a tax advisor becomes your best ally. With their expertise, they can help you structure your holiday spending to maximise deductions while ensuring compliance with ATO regulations.
A good advisor doesn’t just handle your current expenses—they help you plan ahead. They can guide you through complex FBT calculations, identify areas where you might be overspending, and even uncover opportunities to save on next year’s celebrations. Think of them as your financial Santa Claus, keeping your Christmas merry and your taxes manageable.
By combining smart celebration planning with expert advice from the Future Advisory team, you can focus on the joy of the season without the stress of tax surprises. After all, Christmas is meant to share good times, not tax woes!
