Christmas is around the corner and you can’t wait to throw the annual office celebrations! While it might sound like letting the Grinch into the party, do you know the rules around tax deductibility for Christmas parties?

To be deductible the entertainment expense must be business-related. An entertainment expense is business-related if you spend the money to help your business earn income. A team building or team party event qualifies as a business-related expense as it helps improve team engagement.

If the expense does not help your business earn gross income, it's private and you cannot claim it as a tax deduction, even if you paid for it out of your business account (it might sound obvious but still worth mentioning).

What is 50% deductible?

·        Shouting the drinks for your team or clients

·        Inviting staff or customers out for a meal

·        Staff Christmas party - even if held at your premises – and even if you invite clients

·        Anything related to the party: the waiting staff, music, hiring crockery and glasses, hiring a boat or a box at a sports event

What is 100% deductible?

·        Morning or afternoon tea and light refreshments for your team

·        Donating food to a Christmas party at a children’s hospital

·        Entertainment that promotes your business publicly, providing the general public has same access and opportunity as your employees or associated persons (just saying anyone can join does not make it 100% deductible, promoting your business needs to be the primary intention and the event needs to be actively promoted)

When the expense is only 50% deductible, GST is also only 50% deductible. This adjustment can be calculated at the time your income tax return is prepared and returned in the following GST Return.

Taxes are complex matters, asking your accountant for help is advisable. Or contact us at Strategico if you need an accountant with a difference.‍

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