2021 has been another difficult year for all, especially for small businesses, so many people will no doubt be looking forward to celebrating making it through the year and business owners may be wanting to reward staff for their hard work. In planning a Christmas Party and Christmas Gifts for clients and staff, it’s important to understand the tax treatment of these expenses.
Christmas parties are considered to be entertainment in nature, meaning that the costs of the event relating to employees and their families may be subject to fringe benefits tax (FBT). However, there are FBT exemptions that will apply in most cases for Christmas Parties.
If the Christmas Party is held on a working day on your business premises
- For current employees, there is no FBT implications as the exempt property benefits applies, regardless of the cost.
- For associates and family of employees, FBT only applies where the costs per head exceeds $300.
- For clients, there are no FBT implications regardless of the cost.
If the Christmas Party is held off the business premises
- For both employees and their associates, there are no FBT implications where the cost per head is less than $300 under the minor benefits exemption.
- For clients, there are no FBT implications regardless of the cost
Unfortunately, the cost of providing a Christmas Party is only tax-deductible to the extent that it is subject to FBT. Meaning in most instances, the costs of the event cannot be claimed as a tax deduction and no GST credits can be claimed.
The tax treatment of gifts varies depending on whether these are for staff or clients and suppliers.
Where a non-entertainment gift of less than $300 in value is provided to employees the gift is not subject to FBT.
If the cost of the gift exceeds $300 per person, FBT applies.
- A tax deduction and GST credits can be claimed for a non-entertainment gift, regardless of the cost.
- Where an entertainment gift (i.e. tickets to a sporting or musical event or flights and accommodation for a holiday) is provided to employees, the cost of the gift is subject to FBT unless the value of the gift is less than $300.
- If an entertainment gift is provided, a tax deduction and GST credits can only be claimed when it is subject to FBT.
Client gifts are a little more straightforward.
- No FBT applies, and a tax deduction and GST credits can be claimed, regardless of the cost where a non-entertainment gift is provided.
- Where an entertainment gift is provided, no FBT applies, however, a tax deduction and GST credits cannot be claimed.
If you would like any clarification on these rules and how they impact your business, please feel free to Contact Us on (02) 9531 0922.
Eclipse Accounting Group would like to thank our clients for their continued support and wish everyone a safe and happy Christmas and New Year.
Please note that our office will be closed from on the 16th of December 2021 for our own Christmas Party and from 23rd December 2021 – 10th January 2022 to celebrate the festive period.