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As we approach the end of the year, many businesses turn their focus to providing gifts and hosting Christmas parties for their employees.

Businesses don’t always understand the fringe benefits tax (FBT) implications of providing such benefits and if you’re not careful, it could result in significant costs to your business.

Broadly speaking, work Christmas parties are exempt from FBT if they are held during a business day, on work premises and only employees attend. However they also cannot claim a tax deduction.

$300 is the magic number:

The provision of a Christmas party or gift to an employee or an employee’s associate may be considered a minor benefit exemption and, therefore, exempt from FBT if the cost of the party or gift is less than $300 (including GST) per employee/associate, and the employee/associate is not regularly provided with similar benefits and/or the identification or recording of the benefits would be difficult for the employer.

(1) Christmas Parties – Employees

a) Tax Deductions

• Staff Christmas parties are not tax deductible regardless of their location or cost.

b) FBT Consequences

• As there is no tax deduction on staff Christmas parties, there is no FBT payable.

(2) Christmas Parties – Clients

a) Tax Deductions

• Christmas parties where clients attend are also not tax deductible regardless of their location or cost.

b) FBT Consequences

• Meal entertainment expenses for clients do not attract FBT under any circumstances (as the business does not get a tax deduction).
• This means you can spend more or less than $300/head on your Christmas lunch, and for clients their lunch will be exempt from FBT.

(3) Christmas gifts – Employees

Gifting can be a little bit trickier as it is important to consider whether the gift is actually a gift or if it is an entertainment gift.

a) Gifts: A gift generally includes things like a chocolate box, gift voucher, pen or Christmas hamper.

• Gifts under $300 GST inclusive for staff members are tax deductible and there is no FBT payable.
• Gifts over $300 GST inclusive for staff members are tax deductible but FBT is payable at 47%.

b) Entertainment Gift: Includes “recreation” such as tickets to a musical, theatre, live play, movie, sporting events or providing a holiday.

• Entertainment gifts under $300 GST inclusive for staff are not tax deductible and no FBT applies.
• Entertainment gifts over $300 GST inclusive for staff a are tax deductible but FBT is payable at 47%.

(4) Christmas gifts – Clients

a) Gifts

• Gifts for clients are tax deductible and there is no FBT payable regardless of the cost.

b) Entertainment Gifts

• Entertainment gifts for clients are not tax deducible and there is no FBT payable.

So what is the best option for your business?

The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.

Feel free to contact us on 5366 1000 if you require more information on this.