Christmas Party & Gifting: A Guide to What You Can and Can’t Claim
As the festive season approaches, businesses are gearing up for Christmas parties and thoughtful gifting to express thanks to their employees. Knowing what you can and can’t claim can be confusing and can make a big difference to how you celebrate. It’s crucial for businesses to be aware of the tax implications associated with these celebrations. In this article, we’ll explore what businesses can and can’t claim when it comes to Christmas parties and employee gifts and how FBT is applied.
Please note the FBT exemption is limited to $300 per year in total per employee.
This article is meant as a guide and for advice you should reach out to your accountant or tax advisor.
Employee Gifts
Claimable
When it comes to employee gifts, non-entertainment items are generally exempt from FBT if the total cost remains under $300 inclusive of GST per employee.
Examples of such gifts include things like:
- Flowers
- Department store gift vouchers
- Hampers
- Skincare products.
Importantly, a tax deduction and GST credit can still be claimed in these instances.
Not Claimable
However, if the gift falls under the category of entertainment and is under $300 inclusive of GST, FBT is not applicable, but you can also not claim a tax deduction nor GST credit. Entertainment gifts are things like:
- Holidays
- Dinner vouchers
- Movie tickets
- Tickets to sporting events
- Tickets to theatre shows.
It’s essential for businesses to distinguish between entertainment and non-entertainment gifts for accurate tax assessment.
Claimable & no FBT applies:
- Under $300 per person
- Not entertainment related
Not claimable however no FBT applies
- Under $300 per person
- Entertainment related
Claimable AND FBT applies
- Any employee gift over $300
Sole trader gifts (Gifting yourself)
Hey you have earnt it, treat yourself however you like but unfortunately no gifts to yourself are claimable. The tax benefits are reserved exclusively for gifts provided to employees.
Client Gifts
Under ATO rules, non entertainment gifts given to a current or former client may be deductible at tax time if they are offered with the intention of generating future assessable income. (Eg a hamper sent to a valued client at Christmas time.)
However, it is important to seek advice from your accountant or qualified tax professional before deciding to purchase client gifts this festive season as not all gifts are tax deductible.
Christmas Party Expenses
Christmas parties add a festive touch to workplace celebrations and understanding the tax implications associated with these events is really important when budgeting and planning your celebration. Similar to the gifting rules where FBT is concerned, these are still classed as ‘entertainment’ so the key is staying under the $300 per person rule to avoid FBT.
Costs Under $300 per head (Including GST):
- No FBT applies.
- No tax deduction can be claimed.
Costs Over $300 per head (Including GST):
- FBT is applicable.
- A tax deduction can be claimed.
Examples:
Scenario 1: If a Christmas party is held on a working business day at the workplace, with both employees and their families in attendance, and the cost per head is $100, no FBT is payable for families or friends. However, the minor benefits exemption applies and no tax deduction can be claimed.
Scenario 2: If the Christmas party is held off-site at an expensive restaurant, with the cost per head reaching $350, FBT is payable for employees and their families. In this case, the minor benefits exemption doesn’t apply, as the cost exceeds $300 per head. However, the incurred cost is eligible for a tax deduction.
As businesses gear up for the festive season, understanding how FBT and tax deductions for Christmas parties and gifts work is important when planning. By navigating the ATO rules, businesses can ensure an amazing celebration while staying on budget with no big FBT suprises. If you are unsure exactly how these rules apply to your business, we strongly suggest reaching out to your accountant/ tax advisor for advice tailored to your situation.
This article is meant as a guide and for tax advice you need to contact your accountant or tax advisor.
You can view the ATO guidelines here.
