Christmas parties and gifts
After a busy year, the Christmas season is finally upon us again. For many workplaces, this means it’s time for Christmas parties and gifts to staff and associates. But beware, there may be hidden tax implications to these events.
The provision of food, drink and gifts to employees and their associates may attract Fringe Benefits Tax (FBT), as it could be classified as an entertainment benefit, unless a specific exemption applies. An example of an exemption is the minor benefits exemption. This exemption means that a once off benefit provided to an employee or their associate costing less than $300 may not attract FBT.
Entertainment benefits are not deductible for tax purposes, unless FBT is applicable. This means that if the minor benefits exemption applies, the expense won’t be tax deductible.
Let’s run through a few different scenarios now.
- You decide to hold a Christmas party at your work premises, on a working day and only employees attend. There is no FBT, as it is an exempt property benefit. It follows then that there are no tax deductions or GST credits allowed for this expense.
- You decide to hold a Christmas party at your work premises, on a working day, employees and their associates attend at a cost of $225 per head. Firstly, lets look at this in regard to the employee. This is treated in the same way as the first scenario. There is no FBT, no tax deductions and no GST credits allowed for this expense. Now, lets consider it in regards to the associate. The minor benefits exemption would apply, as the cost is less than $300. This means there is no FBT, no tax deduction and no GST credits.
- You decide to hold a Christmas party at your work premises, on a working day, employees and their associates and clients attend at a cost of $400 per head. The employees are treated in the same way as the first two scenarios, it is a property benefit, therefore no FBT and no deductions are allowed. There is FBT payable on the employees associates expenses as the cost exceeds $300. It follows that you can claim a tax deduction and GST credits for this expense. FBT only applies to employees and their associates. This means that expenses related to clients do not attract FBT. The expense associated with the client is considered entertainment and is not tax deductable and no GST credits are allowed.
Let’s change it up now and host the Christmas party at an external venue.
- You invite current employees and their associates; the cost is $225 per head. The minor benefits exemption would apply. This means there is no FBT payable, no tax deduction allowed and no GST credits.
- You invite current employees and their associates and clients; the cost is $400 per head. For employees and their associates FBT would be payable. This mean the tax deduction and GST credits are available. For clients, no FBT is applicable, so no tax deduction or GST credits are allowed (as it is entertainment).
If a gift is provided to an employee, it is most tax effective to provide one that is non-entertainment costs less than $300. In this scenario, there would be no FBT payable, however a tax deduction and GST credits would be allowed. These gifts are normally not subject to FBT as they are one off and not as a reward for service. Gifts which are considered entertainment, are not tax deductible. An example of a gift which would be considered entertainment is sports, theatre or movie tickets or flights and accommodation for a holiday. Christmas, flowers and gift cards are all considered non-entertainment.
So there you have it. Don’t forget to eat, drink and be merry this festive season. If you have any questions, get in contact with the friendly team at The Great Bean Counters.