Tax implications on Christmas parties & gifts
Are you planning a Christmas Party for your employees or planning to give Christmas gifts to them?
Fringe Benefit Tax & Christmas Festivities
Your business Christmas entertainment (party & gifts) are income tax deductible if they are subject to FBT. However, there would also be tax that is payable on this expense.
Know your tax obligations & whether it’s deductible or not before you spend!
Gifts for employees
It is a great idea to reward your employees’ hard work throughout the year. However don’t get caught out and incur more tax than you need to at Christmas.
If giving gifts to employees, keep the cost of the gift below $300 per person. These expenses are classified as Minor Benefits and therefore not subject to Frings Benefits Tax.
If you are planning to give your employees gift cards, beware that not all gift cards are deductible!
To be deductible the total given needs to be under $300 per employee and they cannot be classed as an entertainment type gift card/voucher!
Entertainment gift cards are gift cards that supply recreational activities such as movie tickets, theatre/musical tickets, live music show tickets, sporting event tickets, club membership or can be used towards a holiday.
So remember, to be deductible they need to be ordinary gift cards which are redeemed for goods.
Gifts for clients
These are deductible as long as the gift is given with the expectation that the business will benefit in future. That is, it will bring future income to your business.
Entertainment/Parties
To avoid paying FBT on your business Christmas party, you would need to host it at your business premises on a work day. If your work Christmas party is held away from your business, you should keep the cost of your celebrations below $300 per person (this includes all the costs of the event ie. meals, drinks, entertainment, etc) to also avoid FBT.
If your business hosts more extravagant parties and exceeds the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction for the cost of the event.
Unfortunately entertaining your clients at Christmas is not tax deductible. So, if you take them out to a nice restaurant, to a show, or any other form of entertainment, then you can’t claim it as a deductible business expense and you can’t claim the GST credits either.
If you want to reward your employees or thank your clients this Christmas season, give us a call and we can help you choose the best way to achieve this whilst keeping your tax to a minimum.
