With the festive season well and truly upon us we thought it was important to do a recap on the Fringe Benefits Tax (FBT) rules and income tax deductions which apply to the provision of Christmas parties and gifts. When it comes to celebration and generosity, the ATO isn’t nearly as merry as the man in the red suit!

FBT applies where an employer provides a benefit to an employee other than their regular salary or wage. Depending on the circumstances, Christmas parties and gifts may be considered such a benefit. Our simple, quick reference chart is below for you to save and refer back to or read on for more in-depth explanations of this complex tax area.

Please remember that this information is general in nature and if you have specific questions or require further advice, you should contact your tax advisor.

FBT and ‘entertainment’

If you provide your employees or their associates with food and drink, gifts or recreation activities, you may have to pay FBT – as this may be classified as providing entertainment. Entertainment can mean:

providing food, drink or recreation
providing accommodation or travel in connection with such entertainment, or

Some examples of providing entertainment or recreation are:

business lunches and drinks and staff social functions such as parties
tickets to sporting events
accommodation and travel in connection with entertaining clients and/or employees
a game of golf, a gym membership, river cruise etc.

Minor benefits exemption

Some minor benefits you provide may be exempt from FBT under the minor benefits exemption rule. Generally speaking, if the taxable value is less than $300 then the minor benefits exemption applies.

FBT and Christmas Parties

1. Christmas party held off the business premises

If your work Christmas party is being held out of the office, you will avoid FBT if you keep the cost of the function to below $300 per person. The ATO considers this to be a minor benefit and it is therefore exempt. Make sure you include all of the costs of the event in the $300 (not just food and drink) because entertainment, venue hire, wait staff costs etc are all part of the cost of the event. Note that any travel costs or employee gifts provided for the event are considered a separate benefit from the Christmas party itself. If your event is classed as entertainment, and an FBT exemption applies, you are not able to claim a tax deduction or GST credits for the expense.

2. Christmas party held on the business premises

If you would prefer to avoid potential FBT altogether, the safest option is to host your party at your business premises and on a workday. FBT is unlikely to apply regardless of the cost per person. There is no tax deduction or GST claimable on this expense.

FBT and Christmas Gifts

1. Non-entertainment gifts (eg. Christmas hampers, bottle of wine, gift vouchers etc)

Gifts to employees and their family:

FBT exempt if the total cost is less than $300 (GST inclusive)
Income tax deductible
No GST input credits can be claimed

Gifts to clients, suppliers, contractors etc:

No FBT applies
Income tax deductible
GST input credits can generally be claimed

2. Entertainment gifts (eg. Sporting events, theatre/movie tickets, accommodation)

Gifts to employees and their family:

FBT exempt if the total cost is less than $300 (GST inclusive)
If exempt, then no income tax deduction and no GST credit can be claimed

Gifts to clients, suppliers, contractors etc:

No FBT applies
No income tax deduction and no GST credit can be claimed

What to do for your customers?

You can claim a deduction for the cost of gifts provided to customers if they are incurred with the purpose of advertising your business and generating goodwill or future business opportunities. You need to demonstrate that the expenses are incurred with the intention of generating future assessable income.

The main exception is where the gift is classified as ‘entertainment’ in which case it’s not tax deductible and you can’t claim back the GST. Restaurants, golf days, race days etc all fall into the ‘entertainment’ category.

Further help:

FBT is a complex tax area and you should always seek specialist advice to avoid costly errors. Feel free to contact Marsh & Partners if we can assist with your taxation compliance. You can reach us on (07) 3023 4800 or at mail@marshpartners.com.au.

You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.

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