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.
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. 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 but that’s that!
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 above applies differently to tax exempt entities
- 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 $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
- This means after a tax deduction $467 is the total cost of a $330 meal.
- When FBT applies, a tax deduction to the cost of the entertainment and FBT is available as well as the ability to claim the GST credit.
For further advice and budgeting for the full cost of your Christmas celebrations, and minimising the associated taxes contact the Future Advisory team.