Businesses should be conscious of organising and hosting tax-deductible corporate events that offer superfluous entertainment, said Michael Croker, head of tax at Chartered Accountants Australia and New Zealand.
“Those arranging work-related functions need to be mindful of the adverse income tax and fringe benefits tax (FBT) consequences when the agenda is more about having fun than business,” he said.
“The ATO takes a close interest in extravagant entertainment provided at swanky locations, with pleasant diversions on offer and lots of private time on the agenda to enjoy them.
“Event organisers can achieve ‘win-win’ outcomes — a tax-deductible business event with no FBT exposure. Protecting GST input tax credit entitlements is also an important business consideration.”
The reopening of Australian borders to New Zealand has prompted optimistic forecasts for domestic travel, too, which is expected to see growth fueled by corporate travel.
A report released by Deloitte last week forecast increased travel due to “pent-up demand,” as a result of increased consumer confidence off the back of the pandemic and the government stimulus that accompanied it.
Mr Croker said that, off the back of JobKeeper, Australians will be looking to businesses to “open their wallets” and support the travel, events and hospitality industries.
But those who do so, he said, and are in the midst of planning corporate events, should consult their accountants on the potential tax risks they will expose themselves to.
Accountants should be asked whether the food, drink or recreation available at an event are offered in an entertainment context, or instead a by-product of the function’s main objective. Businesses should also check whether there are income tax and FBT concessions available to them.
Events that fall into the high-risk category, Mr Croker said, are those that include benefits to family and options for extended stays, or holidays.
“Another tax trap some employers fall into is arranging an event that passes the tax tests and then paying for a tacked-on holiday, with family members flown in to share the fun,” he said.
“Post-COVID get-togethers, whether in Australia or New Zealand, can be planned to achieve lots of good business objectives and allow participants to have some fun, without nasty tax surprises.”
John Buckley is a journalist at Accountants Daily.
Before joining the team in 2021, John worked at The Sydney Morning Herald. His reporting has featured in a range of outlets including The Washington Post, The Age, and The Saturday Paper.