It may only be November, but Christmas is fast approaching and so is the time when businesses and organisations hold their end-of-year functions. The costs associated with holding an end-of-year function for staff, customers or both will generally be deductible to a business. However, expenditure in relation to such functions will generally come within the entertainment expenditure regime. The entertainment expenditure regime limits the deduction for specific types of entertainment expenditure to 50% of the actual cost.
The deduction limitation applies differently depending on whether you hold the function on your business premises or whether you hold it elsewhere.
The cost of hiring a marquee, tent, or other exclusive area to hold your end-of-year function off your business premises will be subject to the reduction limitation. However, the cost of hiring a marquee or tent that you will erect on your business premises to hold your function in will be fully deductible. If you decide on a harbour or lake cruise for your function, the cost of hiring the boat will be subject to the deduction limitation.
The cost of providing food and drink will also be subject to the deduction limitation. Although if you are hosting the function on your business premises, the deduction limitation will not apply to the cost of food and drink if the food and drink is limited to light refreshments like a morning or afternoon tea.
Finally, the deduction limitation extends to any expenditure that is incidental to the holding of the function. This means that the costs on hiring crockery, glassware, utensils and waiting staff will only be 50% deductible, as will the cost of any entertainment you provide at the function such as a band or after-dinner speaker.
For more information, please contact your Crowe Horwath adviser.