Christmas parties are a fun way to wind down at the end of the year with your staff and colleagues, and a nice way to show your employees your appreciation for all their hard work during the year. But the costs of hosting a Christmas or end of year party are regarded as ‘entertainment’ expenditure and therefore not tax deductible. They can also be subject to fringe benefits tax (FBT) if the cost per person is over $300, as this doesn’t come under the ‘minor benefits’ exemption.
A minor benefit is one that is provided to staff or their associates (family members/spouses) on an irregular basis, is under $300 per benefit inclusive of GST and is not considered a reward for service.
‘Entertainment’ gifts aren’t tax effective
Entertainment gifts including restaurant meals, tickets to movies, musicals or sporting events or providing a holiday might seem like a great idea, and if the cost of the gift is under $300 (GST inclusive) for each employee and their associate then FBT is not payable. However, you cannot claim a tax deduction or GST credit for this gifts.
If the gift is over $300, a tax deduction and GST credit can be claimed, but you also have to pay FBT on the grossed-up value of the expense.
If you buy entertainment gifts for clients, FBT is not payable, and neither can you claim a tax deduction or GST credit, regardless of the cost of the gift.
Giving ‘non-entertainment’ gifts
Non-entertainment gifts, including Christmas hampers, bottles of alcohol, perfume, skincare and beauty products and gift vouchers are generally more tax-effective gifts to give your employees. Non-entertainment gifts under $300 (GST inclusive) are fully tax deductible, you can claim a GST credit, and no FBT is payable.
Gifts that cost more than $300 aren’t as tax favourable. You can still claim a tax deduction and GST credit, but you have to pay FBT on the grossed-up value of the gift, which can get pricey!
Non-entertainment gifts given to clients or suppliers aren’t subject to FBT as they aren’t considered staff, but you can generally still claim a GST credit and tax deduction for these gifts provided they aren’t excessive.
Have a look at our diagrams below for a quick summary of the tax implications when buying gifts for staff and clients, head over to our FBT resources page for our ‘Meals & Entertainment – Tips & Traps’ factsheet, or head to the ATO website for more info. As always, if you have any questions, feel free to get in touch with us.