Looking for the lowdown on what Christmas gifts for employees and clients are tax deductible, and which ones aren’t?
How does the work Christmas party or lunch stack up in the tax stakes, and how Fringe Benefits Tax comes into play?
For astute businesses, it pays to be across the most tax-effective options for staff and customer gifts and end-of-year festivities – and it may not be as obvious as you think (what? Surely not!? 😀)
So, if you want to make it like Santa and spread some much-appreciated Christmas cheer this year, make sure you do it the smart way and read on…!
Q. Are Christmas gifts to employees tax deductible?
In short, yes! However, there are some stipulations.
If you give employees a Christmas gift (ie. chocolates, alcohol, gift vouchers, hampers, flowers) valued at less than $300 each, these are not subject to Fringe Benefits Tax (FBT).
Over $300, FBT does apply, so ensuring it stays under this amount is ideal.
No matter the value (or if a staff member’s family can also enjoy it), these types of gifts will be fully tax deductible, and you can claim a GST credit.
**The Entertainment Rule
A key consideration, though, is that if a gift is considered ‘entertainment’ (ie. concert, sporting event, theatre, movie or airline tickets), different rules apply.
If you give an employee an entertainment gift under $300, it’s not subject to FBT and not tax deductible.
Over $300, an entertainment gift will be subject to FBT and will be tax deductible.
Q. What about holiday gifts for customers & clients?
FBT does not apply to any gifts given to customers or clients.
Client/supplier/customer Christmas gifts are tax deductions for companies, however, some gifts (such as food or drink or a restaurant voucher or VIP tickets to an event) may only be 50 percent deductible, not 100 percent.
The $300 threshold is not a factor here.
Q. How about if we give employees a cash bonus for Christmas?
Cash bonuses to staff at Christmas are treated like any other form of income, and payroll taxes may apply.
Bonuses are taxed at a flat rate linked to regular income tax ranges.
Q. Are work/staff Christmas parties for employees and/or clients tax deductible?
Firstly, it’s important to remember that a Christmas function is deemed to be entertainment because the purpose is for guests to enjoy themselves.
Secondly, when it comes to claiming staff / work Christmas party expenses, there are some rules – of course!
For Christmas parties held on a business day at your workplace:
When it comes to FBT, if your business hosts a festive function on a working day on your premises just for current employees, there’s no FBT paid.
If your employees bring a guest and the per head event cost is less than $300, no FBT is paid.
If the cost goes over $300 a head, no FBT is paid for employees or clients (and no tax deductions apply for the latter), however, FBT will arise for staff partners/guests.
For Christmas parties held outside of the workplace:
- In this case, FBT does not apply for employees if the ‘minor benefits exemption’ applies ie. if the cost is less than $300 and it would be considered unreasonable to treat it as a fringe benefit.
If the cost goes over $300, FBT is paid for employees and their partners but not for clients.
- Regarding a guest/partner of an employee, if the cost is under $300, no FBT is paid. Over $300, it will apply.
- If you invite clients/customers, your business does not pay FBT for the costs relating to these guests, and they are not tax-deductible, no matter the cost.
*A key tax note!
If a Christmas party is not subject to FBT, companies can’t claim income tax deductions or GST credits for the cost.
Got it all straight?
We get it; it can be a little confusing!
If you need help with silly season tax advice and planning, the friendly (and ever-festive!) team at Astute Business Consultants is more than happy to help.
We’re based in Perth and Karratha and work with businesses all around the country from a wide range of sectors, so contact us today.
Oh, and Happy (early) Christmas!
May it be merry and bright this year.