Christmas party decision tree

Transcription

1 Christmas party decision tree provides a Christmas party (meals and drinks) On business premises during a working day to: Offsite (eg a restaurant) regardless of the time of day to: 2 Associate of employee n-deductible OUTCOME 2: input tax credit 1: Minor benefit exemption under s58p FBTAA: must be less than $300 per benefit, provided on an irregular and infrequent basis, and satisfy other relevant conditions (see TR 2007/12 for details). 2: Income tax treatment for entertainment expenses determined under Division 32 ITAA97. For FBT purposes, this decision tree and those on the other pages apply where an actual basis of calculating meal entertainment fringe benefits is used (not the 50/50 split or 12-week register method). Outcomes may differ subject to the taxpayer s individual circumstances.

2 Christmas party: Examples from the ATO EXAMPLE 1 A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine. The implications for the employer in this situation would be as follows. EXAMPLE 2 Another company decides to hold its Christmas party function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. The implications for the employer in this situation would be as follows. If Then If Then only attend and their $180 per as it is an exempt property benefit. for there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply, and for there are no FBT implications as the minor benefit exemption applies. only attend at a cost of $195 per and their $180 per as the minor benefits exemption applies. as the minor benefits exemption applies., their and some clients $365 per for there are no FBT implications as it is an exempt property benefit for a taxable fringe benefit will arise as the value is equal to or more than $300, and for clients there is no FBT payable and no income tax deduction., their and clients $365 per for a taxable fringe benefit will arise for a taxable fringe benefit will arise, and for clients there is no FBT payable and the cost of providing the entertainment is not income tax deductible. In these examples, the employers have not used the 50/50 split or 12-week register methods as the basis for its valuing all of its meal entertainment fringe benefits.

3 Getting to or from the party decision tree provides transportation (eg taxi, bus, etc) Associate of employee 2 From work premises to function From function to non-work premises Either: From work premises to function, or From function to non-work premises Either: From work premises to function, or From function to non-work premises By other form By taxi? 1 OUTCOME 2: n-deductible 1: Minor benefit exemption under s58p FBTAA: must be less than $300 per benefit, provided on an irregular and infrequent basis, and satisfy other relevant conditions (see TR 2007/12 for details). 2: Income tax treatment for entertainment expenses determined under Division 32 ITAA97.

4 Christmas gift decision tree provides a Christmas gift (eg property) The gift constitutes entertainment and is provided to: The gift does not constitute entertainment and is provided to: n-deductible OUTCOME 2: 2 OUTCOME 3: 2 1: Minor benefit exemption under s58p FBTAA: must be less than $300 per benefit, provided on an irregular and infrequent basis, and satisfy other relevant conditions (see TR 2007/12 for details). 2: Income tax treatment for entertainment expenses determined under Division 32 ITAA9.

5 ATO releases new guidance on deductibility of client gifts Tax Determination TD 2016/14 issued recently by the ATO provides guidance on whether an outgoing incurred by a business taxpayer for a gift provided to a former or client is deductible under the general deduction provisions contained in s8-1 ITAA97. The ATO confirms that such outgoings are typically deductible under s8-1 ITAA97 as they are being made for the purposes of producing future assessable income. However, the outgoing is not deductible where it is of a capital nature, relates to the gaining of exempt or non-assessable non-exempt income, or some other provision of the income tax law prevents it from being deductible. See examples from the TD below. The determination is a timely reminder as Christmas approaches. Further, note that a deduction is denied to the business where the gift provided constitutes entertainment under Division 32 ITAA97. Entertainment under the law is defined as: (i) entertainment by way of food, drink or recreation (eg golf days), or (ii) accommodation or travel to do with providing entertainment by way of food, drink or recreation (eg. taxi travel to party venue). TD 94/55 lists examples of property which does and does not constitute entertainment. Entertainment champagne (served) hot meals theatre tickets holiday accommodation hired entertainers hired sporting equipment t entertainment bottled spirits groceries games TV sets computers crockery swimming pools gardening equipment EXAMPLE 1 Sally is carrying on a renovation business. Sally gifts a bottle of champagne to a client who had a renovation completed within the preceding 12 months. Sally expects the gift will either generate future business from the client or make them more inclined to refer others to her business. Although Sally got on well with her client, the gift was not made for personal reasons and is not of a private or domestic character. The outgoing Sally incurred for the champagne is not of a capital nature. Sally is entitled to a deduction under section 8-1 of the ITAA97. EXAMPLE 2 Bernard is carrying on a business of selling garden statues. Bernard sells a statue to his brother for $200. Subsequently, Bernard gifts a bottle of champagne to his brother worth $170. Apart from his transaction, Bernard provides gifts only to clients that had spent over $2,500 over the last year. The gift has been made for personal reasons, and is of a private or domestic character. Bernard is not entitled to a deduction under sections 8-1 or of the ITAA97.