Christmas parties and gifts – what is deductible?
It’s that time of the year when you starting to think about your business Christmas celebrations and to say thank you to your employees for another year of hard work. But how does FBT apply? The rules can be confusing!
Before you get too far into your office party planning, it is important to understand Fringe Benefits Tax (FBT) and what expenses you can claim and what you can’t.
Let’s have a look at some of the things you may be considering for your workplace this Christmas.
- Christmas party.
- Gifts for employees.
- Gifts for clients.
- Cash bonuses for employees.
The ATO considers a Christmas party to be ‘entertainment’, and in many cases is subject to FBT. There are cases where the FBT is exempt:
- If the Christmas party takes place on a workday at the business premises, and only employees attend.
- If the cost of food and drink consumed per employee is below $300. No tax deduction or GST input credit is claimable.
- If the event is held off-site or includes associates of employees, such as their partners, the total costs should still be under $300 per head.
Once the cost per-head cost rises over $300, FBT is payable for employees and any family, but not for clients attending. You don’t pay FBT for the costs relating to the clients.
NOTE: Entertainment, gifts, food and drink, can be classed as separate benefits. Therefore, the $300 exemption can be applied to each individual benefit (per head).
If the Christmas party is not subject to FBT, you can’t claim income tax deductions for the cost of the party.
Gifts for employees
As an employer, offering gifts during the holiday season is a thoughtful gesture. Fortunately, you are exempt from paying FBT if the gift’s value is below $300 per person and it would be unreasonable to classify it as a fringe benefit.
Gifts for clients
When giving clients gifts, depending on the nature of the gift, they may be tax deductible and no FBT will apply.
Cash bonuses for employees
A bonus payment is classed as a lump sum payment. It is taxed at a flat rate based on the employees income range.
Any bonus needs to go through the payroll system and PAYE and other applicable payroll taxes need to be deducted like any other individual payment.
If you need more information, please contact an MB+M Advisor for assistance.
Read our other articles for more great insights:
Published 11 December 2023.
The information provided in this article is general in nature only and does not constitute financial advice.