As the holiday season approaches and Christmas celebrations kick off, it’s important not to let tax considerations overshadow the spirit of generosity. Showing appreciation to your employees and clients through festive gestures is a wonderful way to end the year on a positive note.
Here are some practical tips to help you spread Christmas cheer while minimising tax implications:
- Host a Christmas party at your workplace on a regular workday – there is no cost limit for this, no fringe benefits and its fully tax-deductible;
- Cover employees’ transportation costs to and from a workplace Christmas party;
- Organise an off-site Christmas party for employees and their partners, ensuring costs stay below $300 per person (inclusive of GST) because anything above $300 per person attracts FBT;
- Gift employees Christmas hampers, gift cards, or a bottle of wine valued at under $300 (including GST);
- Choose entertainment-based gifts if the total cost of the party per person remains well under $300.
- Provide non-entertainment gifts for your clients (e.g. wine, hampers).
Navigating Tax Rules for Christmas Parties
Tax rules around entertainment can be complex. Providing food, drinks, or other entertainment involves considering Fringe Benefits Tax (FBT), Goods and Services Tax (GST), and Income Tax obligations. The tax treatment may vary depending on the recipients (employees, clients, contractors, or suppliers) and the event’s location.
Workplace Christmas Parties on a Workday
When a Christmas party is held at your workplace during a workday, the food and drinks (including alcohol) provided to employees, clients, contractors, or suppliers may be exempt from FBT. However, this exemption means no income tax deductions or GST credits can be claimed for the expenses.
Transportation costs, such as taxis or rideshare services, for employees and others attending the party may be treated similarly.
If associates like spouses or children attend, FBT could apply. However, if the costs per employee (including associates) are less than $300, they may qualify as ‘minor exempt benefits,’ avoiding FBT.
Off-Site Christmas Parties
Holding your party at a restaurant, bar, or other venue brings slightly different tax considerations. Food and drinks for employees and their associates may attract FBT unless the costs stay below $300 per employee, qualifying as ‘minor exempt benefits.’
Expenses related to travel, accommodation, venue hire, or entertainment, such as DJs or bands, may also trigger an “Entertainment” Fringe Benefits. However, if FBT applies, you may claim an income tax deduction and GST credits for the cost. Otherwise, no tax deduction or GST credits are allowed.
Christmas Gifts and Tax Implications
Small, infrequent gifts under $300 in value for employees and associates may also be FBT-exempt. Gifts and party expenses are considered separately—both can qualify for exemptions as long as they are each below the $300 threshold.
For gifts valued above $300, FBT may apply, but a tax deduction and GST credits can be claimed.
Gifts to clients and suppliers, such as hampers, wine, or gift cards, may not incur FBT, and these expenses may qualify for tax deductions and GST credits. On the other hand, entertainment gifts like event tickets for clients or suppliers may not attract FBT but will not qualify for tax deductions or GST credits either, even if they are below $300.
Meanwhile, gifts to clients are deductible if modest and business-related.
Where can you get more information on Christmas parties, gifts and tax?
Taxation Ruling 97/17 steps out the law on parties, with examples. Paragraphs 27 and 43-56 cover parties held at your business premises and paragraphs 57-62 are specific to parties held at a restaurant, function centre, or similar venue.
Taxation Determination 94/55 steps out the law in relation to gifts.
Don’t let tax concerns deter you from rewarding your team and showing appreciation this festive season.
Plan ahead, understand the tax rules and spread the Christmas joy with confidence. If you should need further clarification or assistance, please don’t hesitate to contact our team.