Don’t invite the Tax Man to your Christmas party!

Christmas is just about here again, it is nearly time to pull out the tinsel and dust off the tree.

Christmas is a great opportunity to reward your staff and let them know they are appreciated. If you haven’t already, now is the time to start organising your Christmas party and considering what gifts, if any, you might give to your clients and staff. Of course tax shouldn’t be the main driver of whether you lavish gifts on your employees (happy staff can provide enormous benefits to your business) HOWEVER, you should consider that there are complex tax implications for providing Christmas cheer!

Here we discuss the implications of Fringe Benefits Tax (a tax on non-cash benefits provided to staff and their families), GST claims and Income Tax deductibility. If you would like further information about how this will affect your business, please contact our office on (08)9226 2039 or at admin@desborough.com.au and one of our accountants will be able to advise based on your specific circumstances.

Planning to reward your staff with a gift?

A gift to staff can be a great way of saying thank you for all their hard work over the year. Gifts such hampers, gift vouchers, flowers and wine are categorised as “non-entertainment gift”; these are exempt from Fringe Benefits Tax (FBT) where the total value of the gift is less than $300 (inclusive of GST). The cost of the gift is also tax deductible and the GST credit can be claimed.

Be wary of giving your staff gifts such as tickets to the theatre or a live concert, the movies, a sporting event, a meal at a restaurant or a short trip away. These are categorised as “entertainment gifts” and have different tax implications. If they are given as gifts to employees and family members and are over the value of $300, FBT is payable and a tax deduction is allowed. Where the combined cost for employees/associates is less than $300 GST inclusive, there is no FBT, however no tax deduction is allowed and no GST credit can be claimed.

What about giving a gift to your clients and suppliers?

These do not fall within the FBT regime, as they are not provided to employees so there are no FBT implications to worry about. Generally a tax deduction and GST credit can be claimed for “non-entertainment gifts”, provided they are not excessive or overly valuable. No tax deduction is available for the cost of any “entertainment gifts” provided to clients and no GST credit can be claimed.

 What about a Christmas Party?

Christmas parties are considered by the ATO to be “entertainment benefits” and will incur FBT unless they fall under the “minor benefits” exemption. A minor benefit is provided to an employee/client on an infrequent or irregular basis and the cost is less than $300 inclusive of GST per employee/client.

It is important to note that the tax implications are different depending on where the party is held and who is attending.

If a Christmas party is held on the business premises on a working day, expenses such as food and drink (including alcohol) are exempt from FBT for staff  with no dollar limit, but no tax deduction or GST credit can be claimed. If you extend this further and invite employees’ families (i.e. associates) and the cost per head for the employees and associates is $300 or more inclusive of GST, there is FBT only on the associates’ portion of food and drink, and a tax deduction and GST credit can be claimed on that portion. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.

If the party is on the business premises on a working day and only employees and clients attend — with only finger food or a light meal and no alcohol —the entire cost is tax deductible. There is no FBT payable and a GST credit can be claimed.

If your Christmas party is off the business premises, money spent would only be exempt from FBT if the cost for employees/associates is less than $300 per head inclusive of GST as this is to be considered a minor benefit. No tax deduction or GST credit can be claimed. If the combined cost for employees/associates is $300 or more, GST inclusive, there is FBT payable on the combined cost — but a tax deduction and GST credit can be claimed on that portion. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.

So….. to make a long story short;

Function on work premises during work hours (including food, entertainment & alcohol)

• Current employees – No FBT, no tax deduction, no GST claim
• Employee family members – No FBT (if under $300 per head), no tax deduction, no GST claim
• Clients – No FBT, no tax deduction, no GST claim

Function on work premises (light meal/finger food and no alcohol)

• Current employees & clients – No FBT, tax deduction and GST claim available

Function off work premises (under $300 per head)

• Current employees –  No FBT (if under $300 per head), no tax deduction, no GST claim
• Employee family members – No FBT (if under $300 per head), no tax deduction, no GST claim
• Clients – No FBT, no tax deduction, no GST claim

Function off work premises (over $300 per head)

• Current employees –  FBT payable , tax deduction and GST claim available
• Employee family members – FBT payable , tax deduction and GST claim available
• Clients – No FBT, no tax deduction, no GST claim

Non-entertainment gifts (any cost)

• Current employees –  No FBT (if under $300 per head), tax deduction and GST claim available
• Employee family members – No FBT (if under $300 per head), tax deduction and GST claim available
• Clients – No FBT, tax deduction and GST claim available

Entertainment gifts (under $300 per head)

• Current employees –  No FBT , no tax deduction, no GST claim
• Employee family members – No FBT  no tax deduction, no GST claim
• Clients – No FBT, no tax deduction, no GST claim

Entertainment gifts (over $300 per head)

• Current employees –  FBT payable , tax deduction and GST claim available
• Employee family members – FBT payable , tax deduction and GST claim available
• Clients – No FBT, no tax deduction, no GST claim