Fringe benefits tax, income tax and GST implications on Christmas Gift and Party

With the festive season is fast approaching, for most business usually will putting on a party for their employees, in celebrating a year end and a new business beginning. As a small business owner, you want to thank your employees and show how much they are appreciated.

Holding a Christmas Party

Holding a Christmas party is a great idea. But did you know that the cost of holding a staff Christmas party is regarded as “entertainment” expenditure and it usually is NOT tax deductible, and subject to pay fringe benefits tax (FBT) if the cost per person is more than $300 (include GST), which doesn’t fall under the “minor benefits” exemption.

So to be able to use the “minor benefits” exemption, we need to make sure to meet the definition of the “minor benefits”. A minor benefit is one that is provided to staff or their associates (for example their spouse or partner), on an “infrequent” or “irregular” basis, is not considered a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.

What about giving “non-entertainment gifts”

It is a better idea to give your staff certain items known as “non-entertainment” gifts which cost less than $300 (include GST) as the amount is fully tax deductible and GST available with no FBT payable.

Non-entertainment gifts given to staff (including working directors (but exclude sole trader and partner in a partnership) are usually exempt from FBT where the total cost is less than $300 inclusive of GST per staff member. A tax deduction and GST credit can also be claimed. The types of gift include skincare & beauty products, flowers, wine, perfumes, gift vouchers and hampers.

The $300 minor benefits exemption also separately applies to any gifts provided to associates meaning that a similar gift can also be provided to a spouse or partner of the staff member with the same favourable tax outcome.

What happens when the “non-entertainment gift” is $300 or more GST inclusive?

Providing employees “non-entertainment gift” of $300 or more GST inclusive is less tax effective. A tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47%.

What happens when providing staff with gifts of beer or wine?

Provide they are not consumed at the workplace or at a work social gathering but instead taking and consumed at home, the cost is tax deductible, a GST credit can be claimed, and is exempt from FBT up to the $300 limit.

Non-entertainment gifts given to clients and suppliers

They do not fall within the FBT rules as they are not considered your staff. Generally, a tax deduction and GST credit can still be claimed provided they are not excessive or overly valuable.

Avoid giving “entertainment gifts”

Providing entertainment gifts to your staff is less favourable than giving non-entertainment gifts. Entertainment gifts include items of “recreation” such as tickets to a concert, live play, movie, sporting events or providing a holiday voucher.

If the cost for each staff member and their associate is less than $300 GST inclusive each, FBT is not payable, but you can’t claim tax deduction or GST credit. However, if the cost for the staff member and their associate is $300 or more GST inclusive each, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47%.

For clients, the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.

So, what should I give my staff this holiday season?

The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.

Some fringe benefits need to be reported on payment summaries. If the value of certain fringe benefits is more than $2,000 in an FBT year, you must record that amount on your payment summary.

More reference regarding this topic: please read Taxpayer Australia – FBT and the Christmeas party and  ATO – regarding FBT for small business

If you wish to discuss more details, please contact us .

Disclaim: The information provided here is of a general information only. please consult an experienced adviser or tax agent.