With the festive season upon us, businesses look at holding Christmas parties and providing Christmas gifts to staff. It should be noted when they are both provided to staff, the employer may be subject to Fringe Benefits Tax (FBT).
A Christmas party is considered an “entertainment benefit” and to the extent that the expenditure relates to employees or their associates attending this party, the expenses may be subject to FBT unless an exemption (e.g. the “minor benefits” exemption) applies.
A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”. Another exemption applies is if the party is held during a business day, on work premises and only employees attend.
Providing a gift to an employee at Christmas time, includes things like gift vouchers, pens and wine are subject to FBT, unless the cost of the gift is less than $300 and the minor benefit provisions apply.
In terms of income tax the cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT cannot be claimed as an income tax deduction. This is the same for any gifts paid to staff therefore we recommend to give employees non-entertainment type gifts as noted above that cost less than $300
In terms of GST on the above expenses, it will only be claimable on the value that is subject to FBT. No GST is claimable on these costs including a party and/or gifts when they are treated as exempt minor benefits as detailed above.