Coffee, Clients and the Christmas Party: What You Can Actually Claim

Mia: Welcome to the podcast, our newsletter made easy. Please note, this podcast features AI-generated voices for your hosts, Mia Taylor Leo: and Leo Baker, bringing you expert insights from the team at Aevum Accounting. Each week, we're here to help you confidently navigate the ins and outs of Australian tax, whether it's for your individual finances or the complexities of your business. Mia: We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. Leo: So, if you're looking to understand your obligations, maximise your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! Mia: This one comes from Jordan. First time using the team, and he said the whole thing was simple and convenient, all of it done online. He mentioned the pre-checklist especially, that it made getting organised beforehand really easy. Leo: Thank you, Jordan. And getting organised beforehand is where today's episode lands, because this is a topic where your records decide whether you can claim anything at all. Mia: Which topic is that? Leo: Feeding people. It's the middle of September, which means in about three weeks every business in the country starts booking a Christmas party. And every year the same question turns up. Can I claim it? Mia: And the answer is no? Leo: The answer depends on four things, and most people only know about one of them. So we're doing the whole subject properly. Harvey, welcome back. Harvey: Thanks. And this is a three-parter, because there's more here than fits in one episode. Today is your own team, and the Christmas party. Next week, everyone who doesn't work for you. Clients, referral partners, gifts and the footy. And the week after that, the machinery underneath all of it. Mia: Start with the basic rule. Harvey: There's one rule and everything else is a footnote to it. Entertainment is not tax deductible and you can't claim the GST on it. There's one main way out: if you pay fringe benefits tax on it, you get the deduction and the GST back. Leo: So you pay one way or the other. Harvey: That's the cleanest way to hold it. Either the tax office gets fringe benefits tax, or you lose the deduction. What the law won't let you do is have both. Mia: And that tax is what rate? Harvey: Forty-seven per cent on the grossed-up value, against a deduction worth maybe twenty-five or thirty cents. So for most small businesses the better outcome is to be exempt, lose the deduction, and pay nothing. Mia: That feels backwards. Harvey: It catches people constantly. When an exemption applies to entertainment you don't just avoid the tax, you also lose the deduction and the GST credit. An exempt benefit isn't a fringe benefit, and the deduction only comes back where it is one. Leo: So the exemption costs you something. Harvey: It costs you the deduction. It just costs you less than forty-seven per cent would have. Leo: So how do we know what counts as entertainment? Harvey: Four questions. Why, what, when and where. The first two matter most. Mia: Take us through why. Harvey: Why did you provide it? If it's refreshment so people can get through the working day, generally not entertainment. If the point of the occasion is for people to enjoy themselves, it is. Leo: And the second one? Harvey: Tea, coffee, biscuits, sandwiches, fruit, juice. None of that is entertainment. The more elaborate the meal, the more it looks like entertainment. A three-course dinner is. Mia: When and where? Harvey: During work time beats after hours. Your own premises beats a restaurant, because a restaurant has social connotations and your lunchroom doesn't. Leo: What about alcohol? Harvey: Close to decisive, and the tax office says it plainly. If alcohol is provided at the morning or afternoon tea or light lunch, you are providing entertainment to your employees and their associates. Same tray of sandwiches, add a bottle of wine, different answer. Mia: Let's go through the real situations. Start with our own staff. Harvey: Good news first. Tea, coffee, milk and biscuits in the office kitchen, for staff and anyone visiting. Not entertainment at all. Deduct it, claim the GST, no fringe benefits tax. It's clean. Leo: What about a working lunch? Harvey: Sandwiches and juice brought in for a meeting or a training session on your premises. Same answer. And light food for someone working back late, same again. Mia: What if we put beers in the fridge on a Friday? Harvey: Then it changes, but not the way you'd expect. Friday drinks in the office are entertainment. But there's an exemption for food and drink you give a current employee, on a working day, on your own business premises. So there's still no tax. All of today assumes you value meal entertainment on actual cost, which most small businesses do. If your accountant uses the fifty-fifty method, this exemption and the minor benefit exemption don't apply to meal entertainment. That's part three. Leo: But no deduction. Harvey: No deduction and no GST credit. Which, as we said, is the cheaper outcome. Mia: What if we add wine to the afternoon tea? Harvey: Same thing. It becomes entertainment the moment there's alcohol, but it's still on your premises, so the exemption still covers it. Nothing to pay. You just lose the deduction on that afternoon. Leo: Here's one I hear a lot. What if I take a staff member for coffee at the café downstairs? Harvey: Different answer, and the one people get wrong most. That exemption needs it to be on your business premises. The café downstairs isn't. Mia: So it's taxable? Harvey: Potentially, and I want to be careful, because there's a popular line that a light meal at a café is fine. The tax office's published ruling actually lists cafés and coffee shops among the places where food is more likely to be entertainment, not less. Leo: So what saves you? Harvey: One thing. There's an exemption for minor benefits, under three hundred dollars, where it would be unreasonable to treat it as a fringe benefit. A coffee is obviously under three hundred. The question is the second half. Mia: Meaning if you do it often, it stops working. Harvey: Correct. Their own failure example is weekly staff lunches at forty-five dollars a head. Low value, but regular, and the total adds up. If you've got a sales manager buying coffees three times a week, that's the pattern. Leo: What's the practical advice? Harvey: Have it in the office where you can. And if you're out, don't assume it's free. Mia: What about people working from home? Harvey: That exemption can't help, because the law says business premises doesn't include somewhere used as an employee's residence. Sending lunch to someone's house isn't the same as feeding them in the office, and plenty of employers assumed it was. Mia: Alright, let's do the Christmas party. Harvey: Let's do it properly, because there are four separate things happening at a Christmas party and most people treat it as one. Leo: Take us through the four. Harvey: One, the food and drink for your employees. If the party is on your business premises on a working day, that's exempt. No tax, and no deduction either. Mia: What's number two? Harvey: The partners, and this is the one that surprises people. That premises exemption only covers your current employees. It has no application to their spouses. Leo: So the partners are taxable. Harvey: Unless their share is under three hundred dollars and it's a minor benefit, which for most parties it is, and then there's no tax on it and no deduction either. Here's the twist. If the partner's share does end up as a taxable fringe benefit, because it's three hundred dollars or more or the minor benefit rules don't apply, you get the deduction and the GST credit back on their share. Mia: So the spouses are better for us than the staff. Harvey: On the income tax, yes, when their share is taxable. Which is a strange sentence to say out loud. Leo: What's number three? Harvey: The entertainment that isn't food. A band, a DJ, a magician. That premises exemption only covers property, things you hand over. A hired entertainer is a different category, so the exemption can't reach it at all. Mia: And number four? Harvey: The gifts you hand out, which get looked at separately from the party itself. Leo: So what does that add up to? Harvey: Something useful. The three hundred dollar threshold is tested on each benefit separately, not on the total per person. So you can have a party costing four hundred and thirty dollars a head, covering food, band, tickets and a gift, and pay no fringe benefits tax, because each of those four is under three hundred on its own. Mia: Four hundred and thirty a head and nothing to pay. Harvey: It's possible, and it isn't automatic. Clearing three hundred on each item only gets you through the first test. There's a second one, whether it would be unreasonable to treat it as a fringe benefit, and at that point the law makes you add all the associated benefits back up. Leo: So you can win the first test four times and lose the second. Harvey: You can. Stack enough onto one night and you will. Leo: And if one of those four does go over three hundred? Harvey: Then you lose the exemption on that benefit, and here's the part people miss. It isn't just the excess that gets taxed. Go to three hundred and five dollars a head on the food, and the whole three hundred and five is subject to tax, not the five. Mia: So it's a cliff, not a step. Harvey: A cliff. Which is why, if you're getting close, you stop ordering. Leo: Which brings us back to Jordan's review, and records. Harvey: It does, because everything today depends on being able to show what happened. Date, how many people, who they were, what it cost, what it was, where. And what isn't enough is a credit card statement with a total on it. Photograph the receipt and write on it who was there, the same day. Mia: Let's recap. Entertainment isn't deductible unless you pay fringe benefits tax on it. Leo: Coffee and sandwiches in the office are clean. Add alcohol, or go to a café, and they're not. Mia: And feeding someone at home doesn't get that premises exemption at all. Leo: And at the Christmas party, the premises exemption covers your staff. Not their partners, and not the band. Mia: And three hundred dollars is per benefit, not per person. Leo: But it's a cliff. Reach three hundred dollars on any single benefit and that whole benefit is taxed. Leo: Next week, everyone who doesn't work for you. Client dinners, referral partners, gifts, and what happens when you take someone to the footy. Mia: Is the gift one good news? Leo: It's the best news in the whole series. Mia: If you're not a client yet and you'd like a hand getting this right before the party season, head to aevumaccounting.com.au and book a session. Leo: Or head to aevumaccounting.com.au. And if you're already a client, bring it up at your next catch-up and the team will go through your accounts with you. Mia: Before we go, a quick but important reminder. The information shared today is for general informational purposes only, and does not constitute specific tax or financial advice. Leo: Everyone's situation is unique, and tax laws are complex. For personalised advice tailored to your situation, we always recommend consulting with a qualified professional. Mia: Until next time, stay savvy, stay proactive... Harvey: And write on the back of the receipt!