Christmas party and gift considerations
You can provide gifts to you clients and employees and claim them as a deduction, as long as they are not considered to be an ‘entertainment’ item. For employees, these expense items will attract fringe benefits tax (FBT) or otherwise, not claimable.
Physical gifts such as trinkets, food, beverages or “non-entertainment” gifts that don’t fall into the entertainment category costing less than $300 as they will not attract FBT and are tax deductible.
Christmas parties are very common for employers to host, and it is important to note that the cost of a staff Christmas party is regarded as ‘entertainment’ expenditure and is not income tax deductible and will also attract entertainment fringe benefits tax (FBT) if the cost per person is greater than $300 and does not fall under the minor benefits exemption. This needs to be built in to the cost of the event.
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.
Non-entertainment gifts given to staff (including working directors) 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 can include skincare and beauty products, flowers, wine, perfumes, gift vouchers and hampers.
Providing employees “non-entertainment gifts” 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 49 percent on the grossed-up value.
Non-entertainment gifts given to clients and suppliers 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.
Providing entertainment gifts to your staff is less favourable than giving non-entertainment gifts. Entertainment gifts include items of “recreation” such as tickets to live events or providing a holiday.
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 49 percent on the grossed-up value.
For clients, the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.