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  • Writer's pictureUHY Haines Norton

T'is the Season

By Tina Zawila

It’s Christmas party time! And for many businesses, this means celebrating with employees and customers at Christmas parties and events. While the aim may be to spread cheer and strengthen relationships, it’s important that business owners are also aware of the potential tax implications associated with these events and gift giving at this time of the year.

The cost of hosting a Christmas party for the benefit of your employees and their guests, and Christmas gifts to employees, may be a tax-deductible business expense, however, the flip side of this tax deduction is that Fringe Benefits Tax (FBT) may also apply.

If the event or gift is valued at $300 or less (per employee) it may be considered a minor and infrequent non-cash benefit and may not attract FBT. However, parties and gifts exceeding this threshold may be subject to FBT and that value must be reported on the employee’s payment summary at the end of the year. If you can apply the $300 threshold and avoid FBT, you may not be eligible to claim a tax deduction (you avoid FBT, but you also don’t get an income tax deduction).

Gifts to customers are not subject to FBT as it only applies to employees. These gifts are tax deductible as long as they are not considered entertainment (which is not tax deductible). The nuance, here is that you can give a client a bottle of wine, just don’t open it and drink it with them!

I completely understand that most employers are not thinking about the taxation implications of Christmas parties and gifts at this time of the year, but rather they want to thank their loyal customers and team members for their support during the year. However, we find that when it comes to tax time in June, many wish they had been aware of the $300 FBT threshold and/or kept better records of the expenses associated with these events and gifts.

So don’t suffer a Christmas hangover in July, seek professional advice now to make sure your Christmas celebrations are not only joyful, but also free of any tax surprises!

Call our professional team at UHY Haines Norton on 49721300 to discuss your 2023 Christmas festivities.

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