What you need to know to claim staff gifts and celebrations this year

Christmas Parties

Holding a Christmas party off-premises for your staff is regarded as an ‘entertainment’ expense.

An entertainment expense is only tax deductible to the extent that you are liable for Fringe Benefits Tax (FBT) on it. Your liability for FBT will depend upon which method you choose to calculate FBT on meal entertainment for the FBT year.

An exemption from FBT may be available if the cost per employee (including associates) of the party is less than $300 (and similar celebrations are infrequent). The full exemption will only be available where you calculate meal entertainment benefits for the year using the actual cost method. A full exemption will not be available if you are using either the 50/50 split method or the 12-week register method.

Irrespective of the method chosen to the extent that there is no FBT paid on the expense, then it will not be tax deductible.

If you’re feeling generous and the cost is $300 or more per employee, then you can claim the full cost as a tax deduction if you are using the actual method, but you will have to pay FBT on the entertainment expenses.

If you plan to run a function for clients and referrers, there are no FBT implications for these individuals, but the costs are not income tax deductible either.

Gifts

Gifts below $300 are a tax deductible expense provided they are classified as ‘non-entertainment’. The same rule applies for other special occasions such as birthdays. As long as these gifts are ‘infrequent’, you can claim a tax deduction for amounts of less than $300 for employees and there is no FBT.  Gifts of $300 or more will be subject to FBT but will still be deductible.

If your gift giving extends to your clients and suppliers, the gifts should still be tax deductible with no FBT liability. The $300 limit does not apply.

One of the most important things to note when planning a deductible gift is to ensure the gift meets the ‘non-entertainment’ classification. Gifts such as gift vouchers, a bottle of alcohol, hampers, groceries, games, flowers, beauty products and computers all fit the ‘non entertainment’ classification.

Gifts that are considered ‘entertainment’ and therefore not deductible include theatre, concerts, movie or sporting event tickets, holidays including accommodation and tickets to amusement parks.

Tax implications to keep in mind

The GST input tax credits for the cost of the party or gift can only be claimed in the next Business Activity Statement to the extent that the cost of the party or gift is tax deductible.

The FBT and income tax implications of Christmas parties and gifts can change depending on the cost and types of FBT elections made.

Accordingly, before you put the finishing touches on staff Christmas festivities, discuss the tax implications and other strategies that should be considered with your usual Mazars adviser or alternatively contact one of our specialists via the form below, or on:

Updated: 21/10/2024

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