Don’t Let the Taxman ruin your Christmas Celebrations
So you are very busy organizing your Christmas party, maybe considering the gifts you might want to give to your clients and staff. Amidst all this planning, have you considered you may have to pay the tax man for providing Christmas cheer?
As the Calendar year ends, fast paced organizations begin to plan Christmas festivities for their clients and employees. Sadly, tax laws associated with the provision of Christmas benefits to employees are very sophisticated and it is very difficult to keep the Taxman from crashing your party.
You heard it right. Everything that you spend on a holiday party from drink and food to venue fees and gifts is completely tax deductible.
The blog examines the most common situations faced by employees at the time of Christmas and how employers can offer these benefits in the most tax effective manner.
The golden days of three martini lunches may be long gone, however, knowledgeable entrepreneurs can still use powerful tax deductions for entertaining their stakeholders including their customers, prospects and staff.
Pay no more and no less (tax) than what is required by law) says Canadian Taxpayers Bill of Rights. Here is a list of some tax tips that may help you keep the taxman away from the festive fun. Have a look.
Tax Tip #1
For Christmas parties thrown to employees, the meals served and provided are 100 percent tax deductible. These costs can be tracked separately under a special category called ‘employee entertainment’. This way, at tax time your taxman won’t inadvertently apply the fifty percent rule applicable to prospects and clients.
Canada Revenue Agency, “Taxpayer Bill Of Rights”
Tax Tip # 2
It’s business time! Any entertainment activity that you perform needs to be related to the active conduct of your business or associated with a directly related discussion that followed or preceded the entertainment or meal.
Here is the magic trick. You must conduct business either before the party, during the party or after the party. Still confused? You need to include a product demo, launch a new product or service or just about any business activity related to your business.
Tax Tip #3
The taxman evaluates your party based on the guests you invite to your party. The guest list matters here if you really want to right off your party expenses. You may deduct 100 percent of your cost if the party is open to the general public or purely for employees or their spouses.
If you have arranged a party for your clients, potential clients or independent contractors who work with you, you may deduct only 50 percent of the cost.
And, if the party guests include a mix of employees and spouses, along with your clients and potential clients, you may allot a part of the cost as a 100 percent write off and the remainder as a 50 percent write-off based on the number of guests in each category.
Lastly, if you host a summer BBQ or a simple get together for employees, the expenses are 100 tax-deductible as long as you have invited the entire staff.
Tax Tip #4
Don’t get caught up in the excitement of the moment! Entertainment can be extravagant or lavish. Even though this is a vague area and can be argued with an auditor, why bother? Keep things simple. Be very sure that the entertainment or mea is aligned with your company’s budget.
If your bottom line is zero, you would not be allowed to write off first class accommodations for your potential clients in town for your party.
Tax Tip #5
Go through the guest list. Keep a track of your RSVP’s so you can prove an accurate allocation of expenses between your clients, potential clients, family members, employees and friends and family members who are not at all deductible. Then, keep all receipts for all expenses incurred.
Deck the halls! It is festive season and you and your employees deserve a break. So what are you waiting for? Decorate the tree and get everyone together for a lavish Christmas party.