With festive season well under way, it may be time to consider the tax implications of Christmas parties and gifts.
Christmas parties are considered by the ATO to be “entertainment benefits” and will incur FBT unless specifically exempt or they fall under “minor benefit” exemptions. A minor benefit is provided to an employee on an infrequent or irregular basis and the cost is less than $300 incl. GST.
Note – when it comes to entertainment, you cannot claim the expense as a tax deduction or claim corresponding GST credits unless you pay FBT.
In November 2010, Clive Palmer reportedly gave 750 long term employees of the Yabulu Refinery luxury overseas holidays for two for Christmas. Fifty of his most valued employees received a new Mercedes Benz. Nice.
For the rest of us, we tend to work on a return on investment principle. You want the gift to have an impact for the investment made and if you can do this in a tax efficient way then all the better. Mr Palmer certainly got the impact part right. When it comes to tax efficiency however, it’s likely that he received a very large Fringe Benefits Tax New Year hangover.
If the gifts are for employees, you need to keep the cost of the gift below $300 per person. The gifts also need to be infrequent so splitting a $1,000 gift voucher into 10 x $100 vouchers and giving them to an employee at the end of each month won’t fool the ATO. If the gift is ad-hoc and below $300, the Tax Office considers it to be a minor benefit and as such, exempt from FBT. Gifts above this level are deductible to the business but FBT will apply.
Note – if you give your employees tickets to the movies or a concert, these are also categorised as “Entertainment Gifts” which means they have different tax implications. If given to employee, FBT may apply and if given to a client, no tax deduction is available.
For an ease of use, we have developed a summary of tax treatment for Christmas parties and gifts:
If you do need more details, you can refer to the ATO guidelines or give us a call on 07 3160 7386.
We would love to thank you for all the support during 2017 and wish you Merry Christmas and Happy New Year from all of us @XperionLive.
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