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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.
Christmas Parties and Gifts to Staff: Tax Issues for Businesses
05 December 2019
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7 minute read
An assumption 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.
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Christmas party held on the business premises on a working day |
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Scenario |
Tax implications |
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Current employees only attend |
No FBT as it is an exempt property benefit regardless of the cost No tax deduction No GST credits |
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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 |
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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 |
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Christmas party held off the business premises |
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Scenario |
Tax implications |
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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 |
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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 |
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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 |
* 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.
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.
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Type of gift |
Gifts to employees and their family |
Gifts to clients, suppliers, and contractors etc. |
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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 Gift costing $250 per person
No FBT, claim tax deduction and GST credits
Gift costing $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 |
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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. Gift costing $250 per person
No FBT, no tax deduction & no GST credits
Gift costing $320 per person
FBT applies, claim tax deduction & GST credits |
No FBT, no tax deduction and no GST credits
No FBT, no tax deduction and no GST credits |
About the Authors
Joe Kaleb is a Chartered Accountant, registered tax agent, and and CEO of Australianbiz with over 25 years of experience in providing tax and business advisory services to small to medium sized businesses.
Peter Bembrick is a tax consulting partner at HLB Mann Judd with over 30 years experience in providing tax advice to businesses and individuals. Peter also regularly advises accountants on complex capital gains tax and other tax matters impacting on their clients.
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