With the festive season approaching, many businesses are preparing for holiday parties, events, and gifts for employees and clients. Celebrations are a wonderful way to show appreciation, but they come with tax implications that every business should understand. Here’s a straightforward guide to claimable expenses, Fringe Benefits Tax (FBT), and deductibility for holiday functions and gifts.
Understanding Fringe Benefits Tax (FBT)
FBT is a tax applied to certain benefits employers provide to employees in place of, or in addition to, their salary or wages. It covers benefits like company cars, accommodation, and yes—holiday parties. FBT often applies to perks employees receive outside of their direct salary. However, there are certain exemptions (like minor benefits under $300) that can help businesses avoid this tax.
Parties and Functions
Throwing a holiday party? Here’s what you need to know about tax claims and FBT.
Can You Claim the Expense?
Yes, but FBT might apply, depending on who attends the party and where it’s held.
If the cost per employee (or their associate, such as a family member) is less than $300, it may qualify as a minor benefit and be exempt from FBT under certain conditions.
Income Tax Deductibility
You can claim the cost of a party as a tax deduction if it is subject to FBT. However, if FBT doesn’t apply, the expense typically isn’t deductible for income tax purposes. Keep in mind that GST credits can only be claimed on tax-deductible expenses.
Minor Benefits Exemption
The minor benefits exemption applies to benefits of $300 or less per person. When this exemption applies, no FBT is owed, but the expense is not tax-deductible. The $300 limit is calculated per benefit, so an employee attending a $280 party and receiving a $250 gift would avoid FBT on each if they’re under $300 individually.
Claiming Parties and Functions by Scenario
Here’s a quick guide on FBT status based on attendance and location:
At Your Business Premises on a Workday
Attendance and Costs | FBT Status |
Only employees | No FBT; not tax-deductible |
Employees and spouses @ $180pp | No FBT (minor exemption for spouse); not tax-deductible |
Employees and clients @ $365pp | Employees: No FBT, not tax-deductible; Clients: No FBT, not tax-deductible |
Employee associate @ $365pp (family member) | FBT applies as value exceeds $300 |
At Other Premises
Attendance and Costs | FBT Status |
Only employees @ $195pp | No FBT (minor exemption); not tax-deductible |
Employees and associates @ $195pp | No FBT (minor exemption); not tax-deductible |
Employees, associates, and clients @ $365pp | Employees/associates: FBT applies as value exceeds $300; Clients: No FBT, not tax-deductible |
Gifts for Employees
Thoughtful gifts are a fantastic way to celebrate the season, but the tax treatment varies by gift type and value.
Minor Benefits for Gifts Under $300
For items like hampers, wine, or vouchers, if the gift value is under $300, it may be FBT-exempt under the minor benefits rule. However, such gifts are not tax-deductible, and no GST credits apply.
Gifts Over $300
If a gift is valued over $300, FBT generally applies. These gifts are tax-deductible, and you can claim GST credits.
Gifts for Clients and Suppliers
Holiday gifts for clients or suppliers follow different rules based on the gift type.
Non-Entertainment Gifts (e.g., wine, hampers, vouchers): These are deductible, GST-claimable, and don’t incur FBT.
Entertainment Gifts (e.g., event tickets, memberships): These are not tax-deductible, cannot claim GST credits, and are FBT-exempt.
Summary of Deductibility by Gift Type
Gift Type | Gifts to Employees and Family | Gifts to Clients and Suppliers |
Non-Entertainment Gifts | Tax-deductible if over $300; FBT applies if not a minor benefit (under $300 exempt). | Deductible, GST claimable. No FBT applies. |
Entertainment Gifts | Subject to FBT unless under $300 (minor benefit); not tax-deductible. | Not deductible, no FBT, GST cannot be claimed. |
When celebrating the season, remember some clients, such as government employees, may face restrictions on receiving gifts. The tax regulations around these expenses are nuanced, so if in doubt, consult with your tax advisor. For more specific guidance, you can also refer to the ATO’s information on minor benefits exemption.
At Vivid Enterprise Solutions, we’re here to help you make compliant, strategic decisions for your business. Reach out with questions, and celebrate the season with confidence!
Disclaimer: This article is intended to provide general guidance and is not specific advice. We encourage you to seek tailored advice for your circumstances.
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