In this article, we delve into the tax considerations associated with hosting a Christmas gathering (whether on-site or off-site) and the act of gifting Christmas presents to staff.
Note the following assumes that the business has not opted for either the ’50-50 split’ or ’12-week register’ methods for Fringe Benefits Tax (FBT) purposes.
Christmas Celebrations
Organising a Christmas event for staff at a fancy restaurant? Christmas gatherings fall under the category of “entertainment benefits,” and if the expenses pertain to employees or their associates participating in the event, they may be liable for fringe benefits tax (FBT), unless an exemption like the “minor benefits” exemption is applicable.
A minor benefit, in this context, refers to a provision made to an employee or their associate (e.g., spouse) on an “infrequent” or “irregular” basis, not as a reward for services, and incurring a cost of less than $300 (inclusive of GST) “per benefit.”
Expenses related to entertainment are generally not tax deductible unless they are subject to FBT. Consequently, costs associated with organising a Christmas celebration may not qualify for a deduction under the minor benefit FBT exemption.
| 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 |
**When considering the $300 minor benefits exemption, non-entertainment benefits provided to employees during events like Christmas parties, such as hampers, are treated individually. Despite the aggregate cost exceeding $300 per person, each benefit is evaluated separately under the minor benefits exemption.
Gifts to Staff
In general, businesses aiming for optimal tax outcomes should provide employees with non-entertainment gifts costing less than $300 (including GST) per recipient. This approach ensures full tax deductibility, with no FBT liability and eligibility for claiming GST credits. Gifts distributed during Christmas parties are typically exempt from FBT, as they are infrequent and not given primarily as a reward for services rendered.
In contrast, gifts categorized as entertainment, including recreational items, are non-deductible, and GST credits cannot be claimed. Tax deductions and GST credits are only applicable to entertainment or recreational gifts subject to Fringe Benefit Tax. Therefore, while the minor and infrequent exemption may still apply to entertainment and recreation gifts below $300 (inclusive of GST), tax deductions and GST credits can only be availed when FBT is applicable to such 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 Gift costing $320 per person | 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 Gift costing $320 per person | No FBT, no tax deduction and no GST credits No FBT, no tax deduction and no GST credits |
The information provided is of a general nature and does not consider your specific financial situation, requirements, or objectives. It is important to assess your individual circumstances or consult with professional advisors, such as accountants, before making any decisions based on the content of this article. If you need guidance on FBT implications, we recommend reaching out to Fullstack Advisory for assistance.
