Christmas Parties and Gifts: Tax and FBT Issues For Employers

Christmas Parties and Gifts: Tax and FBT Issues For Employers

It’s Christmas time and we are all looking forward to the office parties and catch-up dinners, so we thought we’d put together this great Christmas tax read on holiday expenses!

We’ll focus on the tax implications of holding Christmas parties (inside or outside the office) and also providing employees and contractors with Christmas gifts.

Please note that we wrote this under the assumption that the business has not chosen either the ‘50-50 split’ or ‘12 week register’ methods for FBT purposes.

CHRISTMAS PARTIES

Christmas parties are a part of “entertainment benefits”. The expenditure relates to employees or their associates attending the function, and so the expenses may be subject to fringe benefits tax (FBT) unless an exemption (like, “minor benefits” exemption) applies.

A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis. This isn’t a reward for services, and it should cost less than $300 (inclusive of GST) “per benefit”.

Entertainment expenses are not tax deductible unless they are subject to FBT.

So, the expenses incurred in providing a Christmas party are generally not deductible where the minor benefit FBT exemption applies.

Christmas parties held on the business premises on a working day

Scenario Tax implications
Current employees only attend No FBT as it is an exempt property benefit regardless of the cost

No tax deduction

No GST credits

Current employees and their associates attend at a cost of $180 per head For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits

For associates – No FBT as the cost is less than $300 per head (minor benefits exemption). No tax deduction and no GST credits

Current employees, their associates and some clients attend at a cost of $365 per head For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits

For associates – FBT applies as the cost per head is equal to or more than $300. Claim tax deduction and GST credits

For clients – no FBT, no income tax deduction and no GST credits

Christmas parties held away from the business premises

Scenario Tax implications
Current employees only attend at a cost of $195 per person No FBT as the cost is less than $300 per head (where the minor benefits exemption applies). No tax deduction and no GST credits
Current employees and their associates attend at a cost of $195 per person No FBT as the cost is less than $300 per head (where the minor benefits exemption applies). No tax deduction and no GST credits
Current employees, their associates and clients attend at a cost of $365 per person For employees & associates – FBT applies as the cost is more than $300.00. Claim tax deduction & GST credits

For clients – no FBT, no income tax deduction and no GST credits

Current employees and their associates attend at a cost of $195 per person. Employees also provided with a hamper (non-entertainment gift) costing $150 per person * Party Costs – No FBT (where the minor benefits exemption applies), no tax deduction and no GST credits

Hamper Costs – No FBT (where the minor benefits exemption applies), claim tax deduction and GST credits

*Non-entertainment benefits provided to employees at the Christmas party, such as a hamper, are considered separately when applying the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.

CHRISTMAS GIFTS

It is considered that the best tax outcome for businesses is to give employees non-entertainment type gifts that cost less than $300 (inclusive of GST) per employee as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed.

The gifts at Christmas parties are usually exempt from FBT because they are not provided on a frequent or regular basis, and the gift is not provided to the employees wholly or principally as a reward for their services rendered.

Unlike non-entertainment gifts, gifts classified as entertainment, including recreation, are non-deductible and GST credits cannot be claimed.

A tax deduction and GST credits can only be claimed on entertainment or recreation gifts where Fringe Benefit Tax applies.

This means that while the minor and infrequent exemption could still apply for entertainment and recreation gifts costing less than $300 (GST inclusive), tax deductions and GST credits can only be claimed where FBT applies to entertainment and recreation gifts.

Type of gift Gifts to employees and their family Gifts to clients, suppliers, and contractors etc.
Non-entertainment gifts

Christmas hamper

Bottle of wine or spirits

Gift vouchers

Flowers

Other similar type gifts

Subject to FBT unless considered a minor benefit
‘Minor benefit’ is a gift costing less than $300 (GST inclusive) per person and provided infrequently 

Gift costing $250 per person – No FBT, no tax deduction & no GST credits

 

Gift costing $320 per person  – FBT applies, claim tax deduction & GST credits

No FBT, claim tax deduction and GST credits

 

 

Entertainment gifts

Theatre or musical tickets

Movie Tickets

Tickets to sporting events

Flights and accommodation for holiday

Membership to a club

Subject to FBT unless considered a minor benefit.
‘Minor benefit’ is a gift costing less than $300 (GST  inclusive per person and provided infrequently 

Gift costing $250 per person – No FBT, no tax deduction & no GST credits

 

Gift costing $320 per person – FBT applies, claim tax deduction & GST credits

No FBT, no tax deduction and no GST credits

*Source: AusBiz (Christmas Parties and Gifts)

 

Call us if you have any questions.  Wishing you all a safe and happy Christmas followed by a prosperous New Year!