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Festive Gifts and Gifting Tax Rules and the Christmas Party!

Gift Wrapped

Tis the season to be jolly, celebrations and giving gifts!

As an Employer, you might be thinking about rewarding your staff with gifts and celebrating by holding a Christmas party.

You might also be wondering if giving gifts and providing entertainment has other implications, such as fringe benefits (FBT) and tax implications.

This will depend on the following, whether the gift is:

  • An entertainment or non-entertainment gift
  • And costs more or less than $300

Read on to find out more!

The ATO advises ‘where a Christmas gift is provided to an employee at a Christmas function that is also provided by the Employer, whether the gift is an exempt benefit needs to be considered separately from the function’.

‘Hampers or presents given to an Employee at a Christmas function are not considered to be the provision of entertainment. As these are not treated as tax-exempt body entertainment benefits, you can consider the minor benefit exemption. For example, a hamper given to each of your employees at a Christmas function – that meets the conditions of the minor benefits exemption rule and is less than $300 – will not attract any FBT’

Giving Gifts to your Clients

Giving your clients gifts at the end of the year is a way of saying ‘thank you’ may help you retain ‘high’ value clients and ultimately generate future income.

But not all Christmas festive gifts are tax deductible! The following are not.

If the gift or thank you is classed as entertainment then No, the expense is not tax deductible.

Under Tax Determination (TD 94/55) entertainment usually relates to immediate consumption of the item of property. Some examples are;

  • hot meals
  • glasses of champagne
  • theatre tickets
  • holiday accommodation
  • hired entertainers

Some examples you can claim include;

  • Bottled spirits
  • Cartons, or bottles of beer or wine
  • Computers
  • Some gift vouchers

Tip: Keep in mind that if a benefit is exempt from FBT, you typically cannot claim it as an income tax deduction, nor claim any GST credits. 

Unsure what this all means, contact Blackburn Accounting we will unwrap and help you understand the gifting tax ‘Rules, fringe benefits tax and Christmas parties.

The Christmas Party

According to the ATO, ‘there is no separate FBT category for Christmas parties and you may encounter different circumstances when providing these events to your staff. The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.’ The costs of entertaining clients are not subject to FBT and are not income tax deductible.’

‘A Christmas party provided to current employees on your Business premises or worksite on a working day may be an exempt benefit. The costs of associates attending the Christmas party is not exempt, unless it is a minor benefit.’

Example
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.

Employer Implications

The implications for the employer in this situation would be as follows.

If…

Then…

current employees only attend

there are no FBT implications as it is an exempt property benefit.

current employees and their associates attend at a cost of $180 per head
  • for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
  • for associates – there are no FBT implications as the minor benefit exemption applies.*

current employees, their associates and some clients attend at a cost of $365 per head
  • for employees – there are no FBT implications as it is an exempt property benefit
  • for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
  • for clients – there is no FBT payable and no income tax deduction.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Christmas party 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.

Example
Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. To find out more,

The ATO website provides details and examples;

 https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/in-detail/fbt-and-christmas-parties/

Entertainment expenses are not tax deductible unless they are subject to FBT. This means expenses incurred in providing a Christmas party are not generally deductible where the minor benefit FBT exemption applies.

Christmas party