“You better watch out, you better not cry! You better not pout, I’m telling you why…”
Christmas is just around the corner and I’m sure many businesses will be looking to celebrate with their teams, especially after the crazy year we have all had.
The tax outcomes for client gifts, employee gifts and Christmas parties can be quite complicated – we have broken down the key points for you below.
- If there is an expectation that the gift will either generate future business from the client or motivate them to refer your services to others, it is considered that the expense of the gift was in the nature of business promotion and is generally considered to be a tax deduction.
- It should be noted that the gift does not constitute the provision of entertainment which is a non-taxable deduction.
- Tax deduction for Christmas parties – The ATO’s view is that the cost of a Christmas party is tax deductible only to the extent that it is subject to Fringe Benefits Tax (“FBT”).
- Christmas party costs exempt from FBT – As a result, Christmas party costs that are exempt from FBT (where the costs relate to exempt minor benefits and exempt property benefits) cannot be claimed as a tax deduction.
- Exempt Minor Benefits – The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
- Exempt Property Benefits – The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day, on your business premises and consumed by current employees. These costs are known as an “Exempt Property Benefit”. The property benefit exemption is only available for employees, not family members.
- Christmas parties held on business premises – A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.
- Christmas parties held off business premises – The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits (i.e. costs are less than $300 per employee and certain conditions are met).
- Entertaining clients – The costs of entertaining clients are not subject to FBT and are not income tax deductible.
The ATO has produced some very helpful tables summarising FBT implications for employers holding Christmas parties on and off business premises – these have been reproduced at the bottom of this article.
- The giving of a gift to an employee at Christmas time may be a minor benefit that is an “exempt benefit” where the value of the gift is less than $300.
- Where a Christmas gift is provided to an employee at a Christmas party, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value each and the other conditions of a minor benefit are met, they will both be exempt benefits.
“He knows if you’ve been bad or good, so be good for goodness sake!”
ATO tables – very useful!
Christmas parties held on business premises
Christmas parties held off business premises
Please note, the above is a guide only. The FBT rules can be quite complicated, so if you are unsure please seek specialist advice.