Tax Deductions: Entertainment

Posted 10 Dec '15

Well that’s not very entertaining!

It’s annual Christmas party time for you, your staff and clients, but before you get stuck into the Vodka Cruisers and Jager Bombs let’s make sure you’re up to speed on the taxman regulations for the festive season.

Generally, not one to walk around quoting tax legislation but it seems appropriate here (to show I’m not making this up); s32.5 of the ITAA 1997 has a big bold heading that states…

No deduction for entertainment expenses

Say whaaaaaaaaaaaat?!

“Surely because I employ staff and these are my clients that I can take them out to say thanks and claim it as a business deduction…? That’s completely legit right?” [Quote from every client ever].

Unfortunately not my friends, the legislation has a pretty broad definition of entertainment…

• Entertainment by way of food, drink or recreation; or
• Accommodation or travel to do with providing entertainment by way of food, drink or recreation.

You are taken to provide entertainment even if business discussions or transactions occur. (Examples: Business lunches, social functions)

I don’t think its PC to quote what clients generally say next about that little definition.

So the big question on your mind is what does this mean for your Christmas party function? Well there are 3 things we can suggest:

1. Onsite Christmas party. If you chose to hold the Christmas party on the business premises on a working day with only employees and clients attending, and only finger food or a light meal and no alcohol is provided, then the entire cost is tax deductible. I mean, cmon, that’s a top solution – how much fun does this party sound?! Thanks ATO!

2. Talk to your Accountant. This is really important because not only can entertainment be non-tax deductible, it can also sometimes (unknowingly) attract Fringe Benefits Tax. It would definitely be worth running your party plans over with your Accountant to ensure you won’t be hit from behind. Also, it reminds you that you should invite them…did you know we are the cool kids of the finance industry?

3. Don’t let the ATO be the reason you don’t throw a rocking party. Still have one (If you want too that is!). You may miss out on the tax deduction but the tacit value that you will receive from your staff and clients by showing them you appreciate them will far outweigh the tax impact!

Before you think about throwing out a big “Bah, Humbug” on the Empire for dampening your Christmas spirit – Please don’t! We love Christmas and we love entertaining! We promise this isn’t the reason why you didn’t get the invite to the Empire Christmas party…Wow…this just got awkward…on that note, I think that’s a wrap for the year!

I hope you all a very Merry Christmas and a safe and happy new year. Thank you again for your support and kind words throughout this year. The Empire loves you and is looking forward to a very prosperous 2016.

Take care, Beth & Luke.