FBT Considerations for Work Christmas Parties and Gifts

As we approach the Christmas period, many businesses will now be considering the festive season, with planning and organisation of celebrations for workplaces, employees, and clients & 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:

Key Points

  • The costs of food and drink associated with your Christmas party are exempted from FBT if they are providing on a working day, on the business premises, and consumed by current employees;
  • A Christmas party may be a 'minor benefit' and exempt if the cost of the party is less than $300 per employee and certain considerations are met;
  • Christmas gifts to employees may be a 'minor benefit' that is an exempt benefit where the value of the gift is less than $300;
  • The cost of providing a Christmas party to your employees is income tax deductible only to the extent that it is subject to FBT;
  • The costs of entertaining clients are not subject to FBT and are not income tax-deductible.

How Fringe Benefit Tax impacts 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.

Additionally, 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 employee 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. If you invite clients or suppliers however, 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 circumstance surrounding office Christmas parties and where FBT may or may not apply:

Situation Does FBT Apply?
A Christmas party is held on a working day at your business premises and only employees attend There is no FBT payable as this is an exempt benefit. There is also not tax deduction
A Christmas party is held on a working day at your business premises and employees as well as their families attend. The cost of food and drink is $100 per person

Employees - there is not FBT payable as this is an exempt benefit and no tax deduction.

Families / Friends of Employees - there is no FBT payable as the cost per head is less than $300, so the minor benefit exemption applies and no tax deduction.

A Christmas party is held at a local restaurant and only employees attend. The cost of food and drink is $100 per head

There is not FBT payable as the cost per head is less than $300 so the minor benefit exemption applies. There is no tax deduction.

A Christmas party is held at an expensive restaurant is the CBD and the 7-course degustation menu with matching wines is ordered. Only employees attend the party. The costs of the 7-course degustation menu with matching wine is $350 per head

FBT is payable in respect of the employee as the minor benefits exemption will not apply, given that the benefit is more than $300 per head. The cost is an allowable tax deduction.

Christmas Gifts - Staff vs. Client Gifts: How Fringe Benefit Tax may Apply

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' gifts generally includes items such as Christmas hampers, a bottle of wine/spirits, gift vouchers, flowers, personalised stationery, etc. Whereas, 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:

Gifts that are non-entertainment Gifts that are considered to be entertainment

Gifts provided to employees are tax deductible regardless of spend.

Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300, where the 'minor benefit' exemption applies.

Where non-entertainment gifts are provided to clients, they are not subject to FBT and are tax deductible regardless of spend.

Gifts provided to employees are not tax deductible, unless the gift is over $300 and subject to FBT. Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300 - where the 'minor benefit' exemption applies.

Where entertainment gifts are provided to clients, they are not subject to FBT and not tax deductible, regardless of spend.

Where you choose to take a client out for a Christmas drink instead, your portion of this may be subject to Fringe Benefits Tax - given its 'entertainment' nature.

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.

 

Greg Rankin

Written by Greg Rankin

Greg is a fully-qualified Senior Accountant, with over five years’ experience working within the Professional Practice – Accounting industry. In his role, Greg works closely with clients across a variety of industry sectors – providing tailored support and helping to address a range of accounting and business services obligations.