It’s that time of year again. In the run up to Christmas, businesses across Australia start to wind down to celebrate the year. For many SMEs, an annual work Christmas party or gift for their clients and employees is customary.
Now, if you have jumped to the conclusion that your business could claim either of these celebratory gestures as an “ATO business expense”, take a pause. It’s not that simple. In fact, there are a range of different situations surrounding Christmas parties and gifts, and their associated tax implications, that you need to be aware of. Dexterous Founder and Managing Director, Nick Urry, explains.
Christmas parties
Christmas parties attended by employees and their families/friends
A Christmas party is considered ‘entertainment’ and in many cases is subject to fringe benefits tax (FBT). FBT is an additional tax paid by employers for some benefits, such as entertainment, that they provide to their team. Where FBT is paid, in most cases you can also receive a tax deduction for the cost of the benefit.
Broadly speaking, work Christmas parties are exempt from FBT if they are held during a business day, on work premises, and only employees attend. They can also be exempt from FBT under the minor benefit exemption if associates of the employee (e.g. friends and family) attend, as long as the cost/head of the benefit is less than $300 (inclusive of GST). For Christmas parties held off business premises, the benefit is exempt from FBT again under the minor benefit exemption only if the cost/head for the employee (and associates, if any attend) is less than $300 (inclusive of GST).
The following table outlines common situations in more detail:
As always, feel free to contact us for FBT guidance specific to your business.
| 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 no tax deduction and GST credits cannot be claimed (this may require a BAS adjustment). |
| 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 drinks is $100/head | Employees – there is no FBT payable as this is an exempt benefit, no tax deduction and no GST credits (see above) Families/Friends of employees – there is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies, no tax deduction and no GST credits |
| A Christmas party is held at a local restaurant and only employees attend. The cost of food and drinks is $100/head | There is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction and no GST credits |
| A Christmas party is held at a local restaurant and only employees as well as their families attend. The cost of food and drinks is $100/head | There is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction and no GST credits. |
| A Christmas party is held at an expensive restaurant in the city and the 7-course degustation menu with matching wines is ordered. Only employees attend the party. The cost of the 7-course degustation menu with matching wines is $350/head | FBT is payable in respect of the employees and their families as the minor benefits exemption will not apply, given that the benefit is more than $300/head. The cost is an allowable tax deduction and GST credits may be claimed. |
Christmas parties to entertain clients
If you choose to invite clients to your Christmas party, the rules change a bit. In all cases (as described above), regardless of the cost of the party, entertaining clients is not subject to FBT and the cost is not tax deductible. This means you can spend more or less than $300/head on your Christmas lunch, and the lunch enjoyed by your clients will be exempt from FBT, not tax deductible and no GST credits claimable.
Christmas gifts
Defining a gift for tax purposes
Gifting is trickier. For tax purposes, a gift may also be considered ‘entertainment’. Therefore, items such as movie tickets, concert tickets, airline tickets and theatre tickets may be subject to FBT and/or non-deductible for tax purposes.
On the other hand, if your business sends chocolate, gift vouchers, pens or Christmas hampers to clients, these may not satisfy the ‘entertainment’ criteria, and thus may not be subject to FBT and/or may be tax deductible.
Gifts that are considered entertainment
If you gift an item of ‘entertainment’ to your employees that is $300 (inclusive of GST) or more, it is subject to FBT, tax deductible and GST credits may be claimed. If the cost of the gift is less than $300 (inclusive of GST), it isn’t subject to FBT and the minor benefit exemption can apply if the gifting is infrequent. However, in this case, you are not entitled to a tax deduction, nor can you claim GST credits.
When clients are gifted products of ‘entertainment’, they are exempt from FBT, not tax deductible and GST credits are not able to be claimed, regardless of spend.
Gifts that are not entertainment
Gifts provided to employees that cost $300 (inclusive of GST) or more are subject to FBT. Whereas, gifts less than $300 are not subject to FBT, but the minor benefit exemption can apply if the gifting is infrequent. However, in this case, you are not entitled to a tax deduction, nor can you claim GST credits.
For client gifts, presents that are not ‘entertainment’ are exempt from FBT, are tax deductible and GST credits may be claimed, regardless of spend.
Need more tax advice?
As you finalise your team’s work Christmas party or gifts, be aware of the rules that apply. After all, making an informed decision about how you choose to celebrate Christmas as a business could save you thousands of dollars in tax.
If you would like specific tax or FBT guidance during this time, get in touch with Dexterous Group here, drop us an email, or call 1300 996 928.
