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Are Christmas gifts & your company Christmas party tax deductible?

Are Christmas gifts & your company Christmas party tax deductible?

With Christmas fast approaching and most Australian businesses starting to think about the season of giving, it’s useful to know whether you also need to give to the ATO at this time of year!

Are Christmas gifts and the company Christmas party tax deductible? And are you able to claim the GST on the expenses incurred?

The Australian Taxation Office guidelines are very clear and specific. They are based around how much you spend per person and whether your “gift” is regarded as entertainment…

Are food and drinks tax deductible?

The Christmas or end of year party is a celebratory event, with companies generally providing food and alcohol for employees, their partners, and possibly clients.

This is considered as “entertainment” by the ATO. Entertainment is considered a benefit for your staff and therefore is dealt with by the Fringe Benefits Tax Legislation.

If you spend more than $300 per person for food and alcohol for your Christmas party, then you will need to pay Fringe Benefits Tax.

To avoid paying Fringe Benefits Tax, ensure that the meals and drinks provided cost less than $300 per person; then these benefits are considered “minor and infrequent”.

In other words, the cost of food and drink for each person attending the Christmas party needs to be less than $300 to be considered exempt.

If you are not paying Fringe Benefits Tax on the expense, then you are not allowed to claim a tax deduction or the GST.

If you are registered and pay Fringe Benefits Tax on the entertainment provided, then you are able to claim a tax deduction for a proportion of this expense and the GST.

The following examples clarify the situation:

Example 1:

If current employees attend a Christmas party and the cost per head is $250, then there is no Fringe Benefits Tax payable as the minor benefit exemption can apply.

However, the expense is not tax deductible and the GST is not claimable.

Example 2:

If current employees and spouses attend a Christmas party and the cost per head is $320, then a taxable fringe benefit will arise, as the cost is equal to or more than $300.

If your business pays Fringe Benefits Tax, then you can claim a tax deduction for a proportion of the expense and  GST.

Are staff Christmas gifts tax deductible?

Your business may provide gifts to your staff at the same time as the party. But are Christmas gifts tax deductible?

Staff gifts are generally treated as a property fringe benefit unless the cost per gift is less than $300 and they are provided infrequently if the gift is more than $300, Fringe Benefits Tax will apply.

If the gift costs less than $300 and is not entertainment, then the gift should be tax deductible, GST should be claimable, and there should be no Fringe Benefits Tax payable.

Gifts that are “not entertainment” include bottled spirits, groceries, games, gift hampers, flower arrangements, plants, and gift cards.

Gifts in the form of entertainment, such as theatre tickets, holiday accommodation, sporting tickets, hot meals, and hired entertainers are treated differently. If the gift is less than $300, then it is not tax deductible, the GST is not claimable, and there is no Fringe Benefits Tax payable.

How to maximise deductions & GST claims and minimise FBT

  • If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
  • Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
  • Give gift cards or vouchers with a value of less than $300. (Vouchers are not considered to be entertainment).
  • Avoid giving ‘entertainment’ gifts of $300 and above, such as membership to clubs, tickets to events or travel.
  • Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.
  • Ensure the cost per head for your Christmas party is less than $300.

Clients

There is no FBT payable on food and drink provided to clients however it is not tax deductible either.

Where you decide to give your favourite client a gift instead, it will depend on whether it is in the form of entertainment or not-entertainment.

Where the gift is classified as entertainment, for example, a meal or tickets to a sporting event or movie tickets, then it will NOT be tax deductible and you can’t claim a GST credit however FBT doesn’t apply either.

Where the gift is classified as not-entertainment, such as a gift hamper, bottle of wine, flowers then you CAN claim a tax deduction and claim the GST credit. Additionally no GST applies either.