As we approach the Christmas period, many businesses will now be considering the festive season, with planning and organisation of celebrations for workplaces, employees, clients, and associates well underway.
For employers and business owners, it is important to understand the Fringe Benefits Tax (FBT) implications which arise during this time when organising your Christmas Party or providing gifts as a show of appreciation for the work undertaken throughout the year.
We highlight a range of scenarios surrounding work-related Christmas Parties and gifts, and their associated FBT implications to you below:
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Key Points
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How Fringe Benefit Tax Impact your Christmas Party?
As an employer, the costs (such as food & drink) associated with Christmas parties are exempt from FBT, as long as they are provided on a working day, on your business premises, and consumed by current employees.
If you were to host your event offsite at a restaurant or similar, certain FBT implications would arise. This is because a Christmas party held offsite is regarded as an 'entertainment' expense which is generally not tax deductible unless it is associated with paying FBT. An exemption may be available for FBT if the cost per head is less than $300.
If you invite associates such as family or friends, FBT would be determined by the per head costs of the function. However, if you invite clients or suppliers, there are no FBT implications for these guests and the cost of providing the entertainment is not income tax deductible.
Listed in the table below are certain circumstances surrounding office Christmas parties and where FBT may or may not apply:
| Christmas party held on business premises on a working day | ||||
| Scenario | Does FBT Apply | Income Tax Deduction | Claim GST Credits | |
| Cost per head less than $300 | Employees |
No - exempt benefit |
No | No |
| Family/Friends | No – minor benefit | No | No | |
| Cost per head $300 or more | Employees | No - exempt benefit | No | No |
| Family/Friends | Yes | Yes | Yes | |
| Clients or Suppliers | No | No | No | |
| Christmas party held off the business premises | ||||
| Scenario | Does FBT Apply | Income Tax Deduction | Claim GST Credits | |
| Cost per head less than $300 | Employees |
No – minor benefit |
No | No |
| Family/Friends | No – minor benefit | No | No | |
| Cost per head $300 or more | Employees | Yes | No | No |
| Family/Friends | Yes | Yes | Yes | |
| Clients or Suppliers | No | No | No | |
Staff and Client Christmas Gifts - Fringe Benefit Tax and Income Tax Implications
Understanding where FBT implications come into effect when providing gifts to staff or clients can be difficult, as it first must be determined whether the gifts are 'entertainment' or 'non-entertainment' in nature.
A 'non-entertainment' gift generally includes items such as Christmas hampers, a bottle of wine/spirits, gift vouchers, flowers, personalised stationery, etc.
A gift of an 'entertainment' nature is typically highlighted as client dining and drinks, or recreation/amusement activities - including theatre, cinema, or sporting event tickets; flights & accommodation for a holiday, or membership to a club.
We've outlined in the table below where FBT implications are involved in entertainment vs. non-entertainment gifting:
| Non-Entertainment Gifts | ||||
| Scenario | Does FBT Apply | Income Tax Deduction | Claim GST Credits | |
| Employees | Under $300 |
No – minor benefit |
Yes | Yes |
| $300 or more | Yes | Yes | Yes | |
| Clients or Suppliers | No | Yes | Yes | |
| Entertainment Gifts | ||||
| Scenario | Does FBT Apply | Income Tax Deduction | Claim GST Credits | |
| Employees | Under $300 |
No – minor benefit |
No | No |
| $300 or more | Yes | No | No | |
| Clients or Suppliers | No | No | No | |
Generally, it is considered that the best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 inclusive of GST per staff member, as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed.
For More Information
If you are currently organising your staff or client Christmas party or considering gifting to employers / clients / suppliers, and need assistance in understanding where FBT implications may be involved, please contact the advisor team at Archer Gowland Redshaw on (07) 3002 2699 | info@agredshaw.com.au.
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