It is that time of year again that employers are organising the annual Christmas party for their employees and thinking about that perfect gift!
There is no such thing as a Christmas Party Fringe Benefits Tax (FBT) category and depending on circumstances of the party and/or the gifts given these benefits may attract FBT. However certain non-cash benefits will not be subject to FBT.
The following types of benefits, which are relevant to determining an employer’s FBT liability when hosting a Christmas party and/or giving staff gifts, are exempt from FBT:
Minor and infrequent benefits valued at less than $300. This is a catch-all exemption available for current employees and their associates for low-value benefits provided on an “infrequent” or “irregular” basis. Christmas gifts given to employees would also fall under this category.
Exempt property benefit e.g. all Christmas party food and drink provided by the employer that is consumed by a current employee at a party, provided the party is held at the employer’s premises on a business day; and
Exempt transport benefits e.g. a current employee’s employer pays for a taxi ride home if the Christmas party is held at the employer’s premises. TR 97/17 outlines Income tax and fringe benefits tax: entertainment by way of food and drink Fringe benefits tax and Christmas parties
Income tax and GST implications of Christmas parties and Christmas Gifts
When assessing whether providing food and drink to employees in way of a Christmas party is an income tax deduction there are a few things to consider – Why, What, When and Where. The answers to these questions will determine how income tax and/or GST credits apply to the expense. If the expense has any characteristic that indicate entertainment or socialising and alcohol is provided, it will not be considered a tax deduction and GST credits will not apply.
Gifts that fall under ”Minor and Infrequent Benefits” FBT category can also be income tax deductible as long as it is classed as a non-entertainment gift. There are many gifts that don’t fall under category of entertainment, therefore income tax deductible eg. gift cards, plants, gift hampers, beauty products.
Alcohol can even be gifted and claimed as an income tax deduction as long as it is not consumed at a workplace gathering, instead consumed at home.
Some gifts that are considered entertainment therefore not tax deductible are – tickets to sporting events, movie tickets, flights, accommodation and restaurant vouchers.
Scenarios – FBT, income tax and GST implications
|Christmas Party||Income Tax Deduction / GST||FBT implications|
|Offsite – less than $300 per head||No||FBT Exempt|
|Offsite – less than $300 per head – partners/spouses included||No||FBT Exempt for employee. May be exempt for spouse if minor benefits exemption applies.|
|Offsite – more than $300 per head||Yes||FBT applies|
|Offsite – more than $300 per head – partners/spouses included||Yes||FBT applies|
|Onsite in work hours – less than $300 per head, food and drink, no alcohol||No||FBT Exempt|
|Onsite in work hours – less than $300 per head, food and drink including alcohol||No||FBT Exempt|
|Christmas Gifts||Income Tax Deduction / GST||FBT implications|
|Employee Gifts classified as non-entertainment, value less than $300||Yes||FBT Exempt|
|Employee Gifts classified as non-entertainment, value more than $300||Yes||FBT applies|
|Client Gifts classified as non-entertainment, value less than $300 if considered not excessive or overly valuable||Yes||No FBT implications for non employees|
|Employee Gifts classified as Entertainment or Recreational, less than $300||No||FBT Exempt|
|Employee Gifts classified as Entertainment or Recreational, more than $300||Yes||FBT applies|
|Client Gifts classified as Entertainment regardless of value||No||No FBT implications for non employees|