With Christmas just around the corner, many businesses are planning end of year functions and gifts for employees and valued clients.
There are a number of tax implications that need to be considered.
1. Staff Gifts
Concert tickets, movie vouchers and holidays are classified as ‘entertainment’ gifts by the ATO and are usually subject to Fringe Benefits Tax (FBT) and are not tax deductible. Hampers, vouchers, bottles of wine and other similar gifts are classified as ‘non-entertainment’ and are generally exempt from FBT. The ideal gift for a staff member is one that is of the non-entertainment type and under $300 (GST inclusive). The cost is fully tax deductible, no FBT is payable and GST credits can be claimed. $300 is the minor benefit threshold for Fringe Benefits tax, so anything at or above this level will incur FBT.
2. Client gifts
There are no FBT implications on gifts provided to customers, suppliers or contractors. This is regardless of whether the cost is over or under $300. If the gift is an ‘Entertainment’ gift, you are not able to claim a tax deduction or a GST credit, however, you can claim a tax deduction and GST credit on ‘non-entertainment’ gifts. The gift must be given for relationship building with the expectation that the client will bestow your business with more work.
3. Christmas bonuses
If you are planning to provide your staff with a cash bonus rather than a present or gift voucher remember that this will be taxed as normal salary and wages. The bonus will be subject to PAYG withholding and will also be treated as ordinary times earnings which means that it will be subject to super guarantee of 11%.
4. Work Christmas parties
The tax implications depend on the location and who is attending the party. If you really want to avoid tax on your work Christmas party then host it in the office on a work day. This way, FBT is unlikely to apply regardless of how much you spend per person.
If your work Christmas party is out of the office, keep the cost below $300 per person. This way, you won’t pay FBT because anything below $300 per person is a minor benefit and exempt. The $300 includes all the costs of the event: meals, drinks, entertainment etc.
The cost of providing a Christmas party is tax deductible only to the extent that it is subject to FBT. That is, if you pay FBT on the amount, it can be deducted for taxation purposes.
Below is a summary showing the FBT, income tax and GST treatment of the Christmas party cost using the ‘actual cost’ method.
| Christmas Party |
Subject to FBT |
Income Tax (Deductible) |
GST (Claimable) |
| Held at work premises – employee (no minimum cost limit) |
No |
No |
No |
| Held at work premises – associates of employee (‘per head’ cost less than $300) |
No |
No |
No |
| Held at work premises – associates of employee (‘per head’ cost more than $300) |
Yes |
Yes |
Yes |
| Held at work premises – clients |
No |
No |
No |
| Held off work premises – employee and their associates (‘per head’ cost less than $300) |
No |
No |
No |
| Held off work premises – employee and their associates (‘per head’ cost more than $300) |
Yes |
Yes |
Yes |
| Held off work premises – clients |
No |
No |
No |
Manager
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