The holiday season is a time for celebration, and for many businesses, this means organising an office party to bring employees and sometimes clients together. While these gatherings are a great way to foster a sense of community and show appreciation, they can also lead to some tricky questions for accountants.
Are you an accountant wondering how to handle office party expenses and their tax implications? In this article, we’re explaining the rules and exemptions that apply to company parties.
Understanding Fringe Benefits Tax (FBT) is important when you’re accounting for office parties, especially during the holiday season. FBT is a tax levied by the ATO on non-cash benefits provided by employers to their employees in addition to regular wages. During the festive season, FBT implications can arise, such as with Christmas fringe benefits tax on office parties and gifts, making it essential for accountants to navigate these rules accurately.
Unlike what you might expect, there isn't a distinct FBT category exclusively for parties or other workplace events. Instead, FBT comes into play when offering fringe benefits to employees, their associates, and sometimes even clients. Fringe benefits include:
For accountants, understanding what part of the office party expenses can be written off for income tax purposes is crucial. Let’s go through the basics:
In simpler terms, if it's subject to FBT, it can potentially be deducted from your taxable income. But if it's exempt from FBT, you can't use it to reduce your income for tax purposes. So, it's important to understand which expenses fall into which category when dealing with office party costs.
When it comes to office party expenses, remember two important exceptions:
An office party is classed as a “fun event”, and the exceptions for it depend on who's involved. Here's how the rules work depending on the group:
For Employees:
For Employees' Friends and Family:
For Clients:
Let's see how accounting works in two different office party scenarios:
Here, the party is seen as an entertainment event. Employees don't pay extra tax for the food, drinks, or transport. Partners of employees also don't pay extra tax because of special rules for small perks. No extra tax is on the menu for clients either. However, the company can't use these expenses to lower their income tax or get back the GST they paid.
If these gifts are worth less than $300 per person and it doesn't seem unreasonable to not tax them, they might not get an extra tax bill. But whether the company can reduce their income tax or get tax benefits for these gifts depends on whether they're seen as "entertainment."
By familiarising yourself with the rules and regulations surrounding office party expenses, you can assist your clients in navigating these potential tax implications while ensuring they can continue to celebrate and appreciate their employees and clients during the festive season.
Using QuickBooks Online can also help you efficiently track and manage these expenses, ensuring accurate financial records, simplifying tax compliance, and ultimately allowing your clients to focus on spreading holiday cheer and building strong relationships with their staff and clients without worrying about their tax obligations.
Sign up for QuickBooks Online to help your clients account for their Christmas office parties today.
Disclaimer: This page is provided for general information purposes only and does not constitute accounting, tax, business, or legal advice. You should always consult your own advisors for advice relating to your business or situation. Always consult the ATO directly as information changes from time to time:
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