One of our superstar advisors, Nicole Tru, has written the following guide to assist our clients with navigating the tax impacts of Christmas parties & gifts. Get in touch with your advisor at HTA if the below information raises some questions.
With the 2022/23 festive season nearing, it is once again worthwhile having a refresher of the Fringe Benefits Tax (FBT) implications associated with celebrations and gifts.
The provision of a Christmas party which is attended by employees will be subject to FBT (at a rate of 47% on the grossed-up taxable value) unless the Christmas party represents an ‘exempt property benefit’ or an ‘exempt minor benefit’.
Key things to consider for your work Christmas party include:
- How much it will cost?
- Will it be held on or off the business premises?
- Will it be held during a normal workday or outside of these times?
- Will it only be employees in attendance or are partners, associates and clients also invited?
Similarly, you’ll need to consider the following when providing Christmas gifts:
- The amount you spend
- The type of gift
- The relationship of the recipient (eg employee, client etc)
Exempt property benefits
We of course note and understand that food and drinks will generally be consumed at Christmas parties.
If a Christmas party is held at the business premises of the employer on a working day, the provision of the food and drink to employees at the party will not be subject to FBT. The provision of gifts (eg bottles of wine or food hampers) may separately qualify as exempt minor benefits (refer below).
The cost of the Christmas party will not be deductible for tax purposes in these circumstances. However, the cost of the gifts provided to employees may be deductible (if the gift itself doesn’t represent “entertainment”).
Please refer to an example below
Example 1 (provided by the ATO) – A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine.
The implications for the employer in this situation would be as follows:
Exempt minor benefits
If the Christmas party does not satisfy the criteria of being an ‘exempt property benefit’ (eg it is held at an offsite venue and/or is not held on a working day), the Christmas party may still qualify as an ‘exempt minor benefit’. In order to be an ‘exempt minor benefit’, the cost per benefit per employee (and potentially per associates such as family members, partners etc) must be less than $300.
If the employer also provides gifts at the Christmas party (eg bottles of wine or food hampers), the provision of the gifts may separately qualify as an ‘exempt minor benefit’ if the value of the gift itself is less than $300. This is because for the purposes of the exempt minor benefits exemption, the value of each benefit provided (ie the Christmas party and the gift) can separately qualify as an ‘exempt minor benefit’ if the value of each separate benefit falls below the $300 threshold.
If the Christmas party represents an exempt minor benefit, the cost of the Christmas party will not be deductible for tax purposes. The cost of the gifts provided to employees may still be deductible however if the gift does not represent “entertainment”.
Example 2 (provided by the ATO) – Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.
The implications for the employer in this situation would be as follows:
No FBT exemption applies
If none of the above exemptions apply, the provision of the Christmas party and the provision of gifts will be subject to FBT if provided to employees and/or their associates. In this instance, the FBT associated with the provision of food and drinks can potentially be calculated under the 50/50 split method.
The cost of the Christmas party and gifts will be deductible for tax purposes to the extent that FBT is payable on them.
Client gifts
The costs associated with providing Christmas gifts to clients (eg wine, food hampers etc) will not be subject to FBT. Most client gifts will be deductible for tax purposes unless the gift represents “entertainment”. If the gift does represent entertainment, the gift will be non-deductible.
GST matters
GST on expenditure which is non-deductible for tax purposes cannot be claimed as an input tax credit.
This means that:
- GST on expenditure incurred which relates to client entertainment will not be claimable.
- GST on expenditure incurred which relates to staff entertainment which is not subject to FBT (eg by representing an exempt property benefit or an exempt minor benefit) will not be claimable.
GST on expenditure representing staff or client gifts will be claimable provided the gifts do not represent entertainment.
FBT can be a complex area to navigate. Please contact us with any questions.
