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FBT applies where an employer provides a benefit to an employee other than their regular salary or wage.  Depending on the circumstances, Christmas parties and gifts may be considered such a benefit. Our simple, quick reference chart is below for you to save and refer back to or read on for more in-depth explanations of this complex tax area.

Please remember that this information is general in nature and if you have specific questions or require further advice, you should contact your tax advisor.

FBT and ‘entertainment’

If you provide your employees or their associates with food and drink, gifts or recreation activities, you may have to pay FBT – as this may be classified as providing entertainment.  Entertainment can mean:

• providing food, drink or recreation
• providing accommodation or travel in connection with such entertainment, or

Some examples of providing entertainment or recreation are:

• business lunches and drinks and staff social functions such as parties
• tickets to sporting events
• accommodation and travel in connection with entertaining clients and/or employees
• a game of golf, a gym membership, river cruise etc.

Minor benefits exemption

Some minor benefits you provide may be exempt from FBT under the minor benefits exemption rule.  Generally speaking, if the taxable value is less than $300 then the minor benefits exemption applies.

FBT and Christmas Parties

1. Christmas party held off the business premises

If your work Christmas party is being held out of the office, you will avoid FBT if you keep the cost of the function to below $300 per person.  The ATO considers this to be a minor benefit and it is therefore exempt.  Make sure you include all of the costs of the event in the $300 (not just food and drink) because entertainment, venue hire, wait staff costs etc are all part of the cost of the event.  Note that any travel costs or employee gifts provided for the event are considered a separate benefit from the Christmas party itself.  If your event is classed as entertainment, and an FBT exemption applies, you are not able to claim a tax deduction or GST credits for the expense.

2. Christmas party held on the business premises

If you would prefer to avoid potential FBT altogether, the safest option is to host your party at your business premises and on a workday.  FBT is unlikely to apply regardless of the cost per person.  There is no tax deduction or GST claimable on this expense.

FBT and Christmas Gifts

1. Non-entertainment gifts (eg. Christmas hampers, bottle of wine, gift vouchers etc)

Gifts to employees and their family:

• FBT exempt if the total cost is less than $300 (GST inclusive)
• Income tax deductible
• No GST input credits can be claimed

Gifts to clients, suppliers, contractors etc:

• No FBT applies
• Income tax deductible
• GST input credits can generally be claimed

2. Entertainment gifts (eg. Sporting events, theatre/movie tickets, accommodation)

Gifts to employees and their family:

• FBT exempt if the total cost is less than $300 (GST inclusive)
• If exempt, then no income tax deduction and no GST credit can be claimed

Gifts to clients, suppliers, contractors etc:

• No FBT applies
• No income tax deduction and no GST credit can be claimed

So what is the best option for your business?

The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.

Feel free to contact us on 5366 1000 if you require more information on this.