If you’re holding a Christmas function or giving work gifts, you may be able to claim tax back.
If you don’t hold a function but give your employees some sort of entertainment – like a voucher that they can use at any time – you may need to pay FBT (fringe benefit tax). You can generally claim 50% of your party expenses in your GST and income tax returns. Party expenses can include things like venue hire, food, drink and entertainment. You can generally claim 100% of the cost of gifts, such as food, wine or event tickets.
Tax deductions on gifts for employees
If you give your employees a gift, you can claim the full cost as an expense as long as it doesn’t fall within the business entertainment rules, but you may have to pay FBT. You won’t have to pay FBT on the gift if it’s less than the general employee exemption and maximum employer exemption.
If you file your FBT returns quarterly, there’s a $300 exemption per employee per quarter if you provide free goods or subsidised or discounted goods and services. If the value of the benefit for an employee goes over $300 for a quarter, you must pay FBT on the full value of the benefit.
For example, Charli and Sam are given gifts of mystery weekends. One is valued at $250 and the other $350. The $250 gift is not subject to FBT but the $350 gift is.
The maximum employer exemption you can claim is $22,500 per annum. If the total value of benefits for all employees goes over $22,500 for the current quarter and the three previous quarters, you must pay FBT on the total value of the benefits in the current quarter.
If you file annual or income year returns there’s a yearly exemption of $1,200 for each employee, with the maximum employer exemption for all employees of $22,500 per year. If the period covered by the return is less or more than a normal income year, an adjustment per employee is needed as: (Days covered by return ÷ 365) x $1,200.
Tax deductible party and entertainment expenses
If you provide your employees, clients and suppliers, or prospective clients and suppliers with any of the following items you can only deduct 50% of the cost because they’re counted as ‘entertainment expenditure’.
Entertainment expenses that are 50% deductible include:
- corporate boxes, corporate marquees or tents, and similar exclusive areas (whether permanent or temporary) at sporting, cultural or other recreational activities that take place away from your business premises, this includes tickets or other rights of entry
- accommodation in a holiday home, time-share apartment or similar, but not accommodation incidental to business activities or employment duties
- pleasure-crafts, such as a corporate yacht
- food and drink provided or consumed
- at any of the three types of entertainment above, such as alcohol and food provided in a corporate box
- away from the taxpayer's place of business – like a business lunch at a restaurant
- on the taxpayer's business premises at a party, reception, celebration meal, or other similar social function – like a Christmas party for all staff, held on the business premises
- at any event or function, on or away from your business premises to build staff morale or goodwill, such as Friday drinks at the pub
- in an area of the business premises reserved for use by senior staff, such as executive dining room for entertaining clients.
If you claim a 50% deduction for a business entertainment expense you’ll have to make a GST adjustment so you're only claiming 50% of the GST, if you previously claimed 100%.
If you are unsure of the treatment of any gifts or entertainment during the Christmas period, do not hesitate to contact our dedicated tax team for assistance.