End-of-Year Festive Season – Claims and Tax Exemptions

Australia’s tradition of celebrating the festive season culminates with end-of-year parties at commercial businesses across the nation, especially in 2022 following a hiatus. Employers keen to reward their employees with the bonhomie of a party, as well as gift-giving, with the right approach, can avoid or reduce tax obligations on the costs of parties and gifts. The Australian Taxation Office (ATO) sets out a complex tax treatment for festive season claims, including Fringe Benefits Tax (FBT). Here is a general summary for employers.

Party Time – How to apply the Minor Benefits Exemption

The rules around tax-deductible expenses when it comes to throwing a work-related party can be confusing. A staff party is classified as entertainment by the ATO. Entertainment is subject to FBT – at 47 per cent (47%) unless the Minor Benefits Exemption is used.

A minor benefit to an employee, and any associate of an employee, is exempt from FBT where it is not a reward for service, it is less than $300 (GST-inclusive) and it would be unreasonable for it to be treated as a fringe benefit. The ATO determines if a minor benefit would be unreasonable to be treated as a fringe benefit by looking at a range of criteria, including the infrequency or irregularity of a minor benefit and the practical difficulty of establishing the notional value of a minor benefit.

A seasonal weekday party held on business premises to which only staff are in attendance and at a cost of no more than $300 (GST-inclusive) per head is an example of how to throw a party that is FBT-exempt. No tax deduction or GST input tax credit may be claimed.

For seasonal weekday parties held on-site with staff, associates and/or clients, so long as the cost per head for food and drinks does not exceed $300 (GST-inclusive) per head, then these parties are also FBT-exempt. Employers might note that there is no FBT on benefits provided to clients.

Off-site seasonal parties, held on a weekday and at a venue that is not used for business, may also be FBT-exempt, so long as the cost per head is up to $300 (GST-inclusive). No tax deduction or GST input tax credit may be claimed.

Once a party’s cost per head exceeds $300, FBT at 47% is payable for employees and any associates of employees. The cost now becomes an allowable tax deduction.

Gifts Galore – What is exempt and what may be claimed?

Giving gifts to staff and clients to incite goodwill and festive cheer can be fraught with questions about tax exemptions and tax obligations on gifts.

To avoid paying FBT, firstly, a gift must not be considered entertainment, such as restaurant meals, concerts, sporting events, movie tickets and holiday accommodation but rather must be a non-entertainment gift such as gift hampers, flowers, sealed bottles of alcohol, beauty products, gift cards and store vouchers.

Second, a gift must cost less than $300 (GST-inclusive) to avoid paying FBT. A gift that meets these criteria is not only exempt from FBT, but a business may claim a tax deduction and a GST input tax credit.

If a non-entertainment gift exceeds the $300 threshold, it will incur FBT, but a tax deduction and a GST input tax credit may both be claimed. To minimise the amount of tax paid, keeping a non-entertainment gift below the $300 threshold is advisable.

Gifts to clients, irrespective of cost, do not incur FBT. No GST input tax credit or tax deduction may be claimed on an entertainment gift to a client. Therefore, to benefit from a GST input tax credit and a tax deduction, consider giving non-entertainment gifts to clients.

Are company partners and sole traders allowed to gift themselves a present?

No. Company partners and sole traders may not buy themselves a gift. These benefits are only for employees, any associates of employees and clients.

Festive Season Record-keeping – YML’s Bookkeeping is at your service

YML’s dedicated virtual bookkeepers understand Australian business, all financial processes and tax regulations, providing your business with financial information, processing, and management-level reporting at any given time of the day or night.

Make sure to keep all records related to entertainment, parties and gift benefits given to your employees and clients.

To assess your festive season costs and the tax implications of throwing your staff and clients a party and giving them gifts, contact YML’s bookkeeping service today.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with festive season tax assessments. For more information, view Our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.   

How to manage your rising monthly loan repayments

The Reserve Bank of Australia has increased the cash rate numerous times since May 2022. For anyone with a variable loan, this has meant rapid rises in interest owed. For many people, these rises stretch the household budget and cause stress as each repayment falls due to the lender.

YML’s reputable Finance Team can offer you a myriad of ways to ease the pressure of repaying your loan. With our insight in to the world of lending, you could soon be managing your monthly repayments despite rates continuing an upward trajectory for the foreseeable future in 2023.

Learn more about how we can help you by calling us on (02) 8383 4466 and requesting a callback or booking an appointment with our Finance Team.

How can YML help?

Talk to our YML Finance Team today to see how YML Group can assist you with managing your monthly loan repayments. For more information, view Our website and contact us on (02) 8383 4466 or by using our Contact Us page on our website.   

Tax Audit Insurance – Why is it important?

In 2023 ongoing developments in artificial intelligence (AI), data matching and social media combine to make a powerful tool for the Australian Taxation Office (ATO) to compare lodged tax return disclosures with other taxpayer and financial benchmarks. This information gives the ATO greater insight in to which businesses – including small to medium enterprises (SMEs) – and which individuals might warrant an official audit of their financial transactions and records.

Businesses and individuals, particularly those who own rental properties, who operate trusts or manage a SMSF are all targets of the ATO’s ability to cross-check financial data against annual tax returns.

An inquiry or investigation of your company and / or your personal finances leads to costs associated with both the audit process and defending your position. Tax audit insurance is a safeguard against the substantial costs that such an audit might entail for your company and for you.

Professional fees, accounting and taxation work done in relation to a tax audit are covered under a tax audit insurance policy. These costs can be much higher than the charges paid initially to lodge your tax return and therefore tax audit insurance is a prudent purchase for companies, SMEs, self-managed superannuation funds (SMSFs) and individuals to make.

Minimise the financial impact of an audit

Any minor issue exposed by data matching could flag the ATO’s attention and place your business entities and you under scrutiny.

It can be costly to be represented if you are selected for review or audit. Depending on the unique circumstances any inquiry or investigation can grow to cost a considerable amount.

Being audited can require hours of work and be a time-consuming and stressful process. Time, stress and expense can be alleviated with the help of professionals and offset by tax audit insurance.

Generally, policies cover costs up to a predetermined limit. Some policies might offer retrospective protection, meaning that a policy also covers previously lodged tax returns. Please check with the policy underwriter for full details, inclusions and exclusions.

YML Group – as your registered Tax Agent – can help you

At YML we recognise how frustrating an audit could be for you. And we know how tax audit insurance can lessen the financial impact of an audit. We can help find the best policy for you. With tax audit insurance, we can respond to your audit matters on your behalf without a substantial financial drain on your business or you. You will soon receive an email from us providing you with the opportunity to take up audit insurance.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your tax audit insurance policy. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.