Christmas is a time for giving, and your business can claim a tax deduction for any donations the business makes to charity. In order to make a tax deductible donation, the donation or gift must be made to a Deductible Gift Recipient (DGR). All monetary donations can be claimed up to the full amount; however, all other types of donations will be subject to various valuation rules. Remember, if you are planning on claiming a deduction make sure to keep any relevant receipts or documents!
With this in mind, why not consider making a donation from your business to a local charity this Christmas? Not only does it give back to your community, but it will also promote goodwill for your business- talk about a win-win situation! Another great idea is to replace the usual corporate gifts to clients with a donation to a charity. Instead of the old shortbread, your client can feel happy knowing that you have made a donation on their behalf. Include this in a card, and say something like ‘your gift has gone to those who need it – we have donated x-amount, to this charity’. Not only do donation gifts make the world a better place, but they are tax deductible.
Christmas parties fall into the category of ‘entertainment benefits’ and as such these expenses will incur FBT unless they are specifically exempt or determined to be a ‘minor benefit’. A minor benefit is one that is provided to an employee on an infrequent or irregular basis and the cost is less than $300 inclusive of GST per employee. As such, in order to avoid an FBT liability you should stick to a budget when planning your Christmas function this year and prevent the cost per head from going above $300.
Holding the Christmas party on the business premises on a working day is usually the most tax effective. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. However, where employees’ families (i.e. associates) also attend and the combined cost for the employees and associates is $300 or more inclusive of GST, there is FBT only on the associates’ portion of food and drink, and a tax deduction and GST credit can be claimed on that portion.
The cost of clients attending the party is not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost. If only employees and clients attend — with only finger food or a light meal and no alcohol — then the entire cost is tax deductible. There is no FBT and a GST credit can be claimed.
Here at The Quinn Group our accountants can help you to legally minimise your tax liability this Christmas. For more information on tax deductible donations, or on Fringe Benefit requirements, call us on 1300 QUINNS (784 667) or submit an online enquiry.