Tips for Providing FBT Free Parties and Gifts to Staff at Christmas

The tax and FBT issues associated with holding a Christmas party and/or providing certain gifts to staff and clients/customers at this time of the year are complex.  

This article examines the tax implications of holding a Christmas party (on the business premises or off-site) and also providing employees (including working directors) and contractors with Christmas gifts.

An assumption in the examples provided below is that the business has not elected to use either the ‘50-50 split’ or ‘12 week register’ methods for FBT purposes.

CHRISTMAS PARTIES 

Christmas parties constitute "entertainment benefits" and to the extent that the expenditure relates to employees or their associates attending the function, the expenses may be subject to fringe benefits tax (FBT) unless an exemption (e.g. the "minor benefits" exemption) applies. 

A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”. 

Entertainment expenses are not tax deductible unless they are subject to FBT. This means that expenses incurred in providing a Christmas party are not generally deductible where the minor benefit FBT exemption applies.

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 to the employer

For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits

For associates – No FBT as the GST inclusive 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 to the employer

For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits

For associates – FBT applies as the GST inclusive cost per head is 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 to the employer of $195 per person

No FBT as the GST inclusive 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 to the employer of $195 per person

No FBT as the GST inclusive 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 to the employer of $365 per person

For employees & associates – FBT applies as the GST inclusive cost is more than $300. 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 to the employer 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

* Non-entertainment benefits provided to employees at the Christmas party, such as a hamper, are considered separately when applying the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.

Taxi travel to and from the party

Any benefit arising from taxi travel by an employee is exempt from fringe benefits tax FBT if the travel is a ‘single trip’ beginning or ending at the employee's place of work.

Accordingly, where the business pays a taxi fare (including ride-sourcing travel) for an employee to travel to and from the Christmas party and the party is held on the business premises, no FBT will apply as the entertainment occurred on business premises - The cost is also tax-deductible and GST credits can be claimed.

Where the party is held off-premises, taxi travel to and from the Christmas party is part of the meal entertainment benefit. In these circumstances, the taxi travel cannot be viewed separately. The travel cost must be added to the cost per employee in determining whether the $300 taxable value has been exceeded under the minor benefits exemption for the employee or a relative.

PROVISION OF GIFTS

Generally, it is considered that the best tax outcome for businesses is to give employees non-entertainment type gifts that cost less than $300 (inclusive of GST) per employee as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed. The gifts at Christmas parties are usually exempt from FBT because they are not provided on a frequent or regular basis, and the gift is not provided to the employees wholly or principally as a reward for their services rendered.

Unlike non-entertainment gifts, gifts classified as entertainment, including recreation, are non-deductible and GST credits cannot be claimed. A tax deduction and GST credits can only be claimed on entertainment or recreation gifts where Fringe Benefit Tax applies. This means that while the minor and infrequent exemption could still apply for entertainment and recreation gifts costing less than $300 (GST inclusive), tax deductions and GST credits can only be claimed where FBT applies to entertainment and recreation gifts. 

Type of gift

Gifts to employees and their family

Gifts to clients, suppliers, consultants 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 GST inclusive cost $250 per person

 

No FBT, claim tax deduction and GST credits

 

Gift GST inclusive cost $320 per person

 

FBT applies, claim tax deduction and GST credits

 

  

 

 

 

 

 

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 GST inclusive cost $250 per person 

 

No FBT, no tax deduction and no GST credits

 

Gift GST inclusive cost $320 per person

 

FBT applies, claim tax deduction and GST credits

 

 

 

 

 

No FBT, no tax deduction and no GST credits 

 

 

 

 

No FBT, no tax deduction and no GST credits

Note:  Where reference is made above to claiming GST credits, this is only where GST has been included in the cost incurred.

Specifically, note that purchasing gift vouchers does not generally attract GST, so there may be no credits to claim. 

Which type of gifts provide the best tax outcome?

Generally, it is considered that the best tax outcome for your business is to give staff non-entertainment type gifts that cost less than $300 inclusive of GST per staff member, or client/contractor as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed.

Saving on employee on-costs

Benefits that are exempt from FBT are not regarded as taxable wages for payroll tax, superannuation guarantee and workers compensation purposes, which results in a saving of these employee on-costs.

 


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