Beware tax traps this festive season, expert warns
Australian businesses need to remain diligent and compliant with Tax Office requirements during the holiday period, a tax expert has cautioned.
The ATO is set to ramp up its review and analysis of business returns with a specific focus on business expenses related to ‘Christmas claims’ in the upcoming holiday season, a tax specialist has warned.
Platinum Accounting Australia and accounting expert, Coco Hou, said businesses must keep tax obligations in mind when planning Christmas parties and gifts for staff and clients.
Hou noted clients are often uncertain or unaware of the type of receipts they need to keep and the type of expenses that can actually be claimed at tax time.
“When it comes to what type of expenses a business can claim for Christmas-related activities, the answer is not so simple and really depends on the type of expense,” she said
“When it comes to celebratory activities it depends on where you have the Christmas party, who comes along, how much you spend, what type of gifts you give and to whom.”
According to the ATO, Christmas parties have been considered to be an entertainment benefit and could attract fringe benefit tax (FBT).
A business Christmas party would be exempt from FBT if the associated costs were considered to be minor benefits, which would apply if they were provided to employees or their partners on an infrequent basis.
The costs would also be considered if they were not seen as a reward, it was less than $300 per person and the Christmas party in question was undertaken on the business premises on a working day.
The ATO also indicated that if an employee's family members were in attendance and the cost per person was greater than $300 including GST, then FBT would apply to the portion that is over $300, and that the business would be able to claim a tax deduction and GST credit for the amount.
Hou said the other area of interest for businesses at the end of the year was gifting, as many liked to thank staff with a gift at the end of the year.
“If the gift is considered a minor benefit by the ATO then no FBT is applicable. To be minor the gift must be less than $300 including GST and not an entertainment gift,” she said.
“Entertainment gifts have different tax implications. These include tickets to performances, the theatre, sports events or even a holiday.”
“As long as they are less than $300 inclusive of GST, these gifts are not subject to FBT. If the gift is more than $300 including GST per employee, then FBT is applicable and the business can claim a tax deduction and GST credits.”
Hou also noted gifts for clients were usually tax deductible if reasonably priced and were not entertainment-related.
In terms of keeping receipts, Hou said there was no excuse not to keep them with the growth in cloud-based software and AI-based systems such as Xero.
“If you haven’t downloaded and started using a good document capture and management system, now is the time to do it,” Hou said.
“They are so easy to use, you simply take a photo of the receipt and upload it and it is saved in the cloud capable of being viewed by colleagues and accessed by your accounting professionals- which is important for tax reasons.”
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