The general rule under the Australian Taxation Law is that cost of entertainment is not tax deductible. However, the same law also provides that a corporation or a person with a business can claim as tax deduction,in full or a portion thereof,costs or expenses incurred in carrying out a business as long as it is within the set rules.
Expenses incurred to conduct corporate events or entertainment, are in general, legit business expenses. And all businesses, from the largest corporations to the smallest single proprietor conduct corporate or business events either for their employees or for existing or prospective customers for the furtherance of their goals. Some of the reasons for holding such events could be:
- To launch a new product or service
- A marketing/sales strategy to attract more customers or clients
- To honor and reward employees for loyal service and hard work
- To improve productivity by promoting teamwork and boosting morale
- To celebrate a milestone in the organization or a holiday such as Christmas
A justification for a corporate event is not limited to the above. But whatever the event and the reason for conducting it is, it always has for its ultimate objective the realization of a company’s short and long-term goals. In fact, most businesses consider corporate entertainment as an investment.
Budgeting for a corporate event
An event budget is essentially a projection of all expenses that are required or related to the delivery and actualization of the event. It could also include a revenue projection if income is expected to be generated from the event.
A corporate event could be a small function attended only by top executives or a big gathering with all the executives and employees in attendance. It could also be a full-blown affair where all the current and prospective clients are invited. Events could be held at the place of business or in large hotels or convention centers. It usually include meals- lunch or dinner, and in some cases live entertainment.
However big or small the event is, preparing an event budget is a must. This will not only help the organizer track the actual expenses as against the budget to avoid over spending, but it will also help for a more organized and systematic execution of the plans. However, in preparing a budget, a consultation with an accountant is advisable since an accountant is knowledgeable on what expenses are tax deductible and which ones are not. Let’s look at the characteristics of a workable event budget:
- Realistic: Projected expenses and revenues should be backed with realistic assumptions with provision for contingencies.
- Complete: Each and every item of event expenditure is provided for in the budget. All expenditures, big or small, should be identified and provided with a budget.
- Clear and User-Friendly: The budget must be clear and easy to read and interpret.
A corporate entertainment for employees such as a Christmas party can be taxed under the Fringe Benefit Tax (FBT). A budget for such an event should take into consideration the steps to take so that the expenses, in full or in part, fall under the minorbenefits exemption to reduce the tax liability.