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Christmas Parties and Gifts to Staff: Tax Issues for Businesses

Promoted by AustralianBiz.

This article examines the tax implications of holding a Christmas party (on the business premises or off-site) and also providing employees (including working directors) and contractors with Christmas gifts.

Sponsored Features AustralianBiz 06 November 2019
— 6 minute read

An assumption is that the business has not elected to use either the ‘50-50 split’ or ‘12 week register’ methods for FBT purposes.

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CHRISTMAS PARTIES

Christmas parties constitute "entertainment benefits" and to the extent that the expenditure relates to employees or their associates attending the function, the expenses may be subject to fringe benefits tax (FBT) unless an exemption (e.g. the "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, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”. 

Entertainment expenses are not tax deductible unless they are subject to FBT. This means that expenses incurred in providing a Christmas party are not generally deductible where the minor benefit FBT exemption applies.

Christmas party 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 party held off 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.

PROVISION OF GIFTS

Generally, 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, claim tax deduction and GST credits

 

Gift costing $320 per person

 

FBT applies, claim tax deduction and GST credits

 

 

 

 

 

No FBT, claim tax deduction and 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 

 

 

 

No FBT, no tax deduction and no GST credits

 

About the Authors

Joe Kaleb is a Chartered Accountant, registered tax agent, and and CEO of Australianbiz with over 25 years of experience in providing tax and business advisory services to small to medium sized businesses.   

Peter Bembrick is a tax consulting partner at HLB Mann Judd with over 30 years experience in providing tax advice to businesses and individuals. Peter also regularly advises accountants on complex capital gains tax and other tax matters impacting on their clients.

 

About Australianbiz – Tax & Financial Management Tools for SME’s

Australianbiz is managed by practising accountants and provides tax and financial management tools to help business owners to better manage their business and income tax obligations. The site is also extensively used by accounting firms across Australia. The major features of our site include:

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Christmas Parties and Gifts to Staff: Tax Issues for Businesses
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