It’s the time of year when you want to say thank you to your team. A long lunch, drinks after work, a hamper on everyone’s desk. It’s a nice thing to do, and a great way to finish the year.
It’s also the time of year we get a lot of questions about fringe benefits tax (FBT). Where you hold the party, who comes, and what you give all change how it’s treated for tax. Here’s how it works.
Christmas parties: where and who makes all the difference
At your workplace, on a working day, just for staff
If your business holds a Christmas party on a working day, on your business premises, and only your current employees attend, you don’t pay FBT on the food and drink.
Off-site, or with partners invited
If the party is held somewhere else, like a restaurant or venue, or employees bring their partners, it can still be FBT-free if it counts as a minor benefit. That means the cost for each person is less than $300 and it would be unreasonable to treat it as a fringe benefit.
Go over $300 a head and FBT comes into play.
Clients on the guest list
If clients come along, you don’t pay FBT on the costs relating to them. FBT only applies to employees and their associates, like partners.
The catch: FBT-free usually means no tax deduction
This is the part that surprises people. If your Christmas party isn’t subject to FBT, you can’t claim an income tax deduction for the cost of it either.
So the party you kept under $300 a head to avoid FBT is still a cost to the business, just not one you can claim. It’s not a reason to skip the party. It’s just worth knowing before you budget.
Planning your end of year celebration and not sure how it’ll be treated? Let’s have a quick chat before you book.
Christmas gifts for staff: what kind of gift matters
Gifts are treated differently depending on whether they count as entertainment.
Non-entertainment gifts under $300
Things like flowers, hampers, skincare products and gift vouchers (as long as they’re not for entertainment) are usually exempt from FBT when they’re under $300 including GST per employee. They’re also tax deductible and you can claim the GST. This is usually the most tax-effective way to give staff a gift.
Entertainment gifts under $300
Things like movie tickets, a sporting event, a theatre show or paying for a holiday are still FBT-exempt under $300. But they’re not tax deductible, and you can’t claim the GST.
Any gift over $300
Once a gift goes over $300, it’s no longer a minor benefit and FBT applies.
A quick way to think about it
Before you book or buy, ask yourself three things:
Where is it happening, and on what day?
Who’s coming, just staff, or partners and clients too?
Is the gift entertainment, and is it under $300?
Those answers decide whether FBT applies and whether you can claim it. If you’re hiring for the first time this year, our post on what your first employee really costs is a good read too.
Enjoy the celebrations, we’ll handle the tax side
Saying thank you to your team should feel good, not like a tax puzzle. If you’re not sure how your party or gifts will be treated, or you’d like to make the most of what you’re spending, we’re happy to help you work it out before you’ve paid the deposit.
Want to get your Christmas party and gifts sorted the right way? Get in touch.
Contact us to have a free chat!
This article is general information only and doesn’t take your personal circumstances into account. Speak with a registered tax agent before making decisions about your tax. We’re happy to have a free, no-obligation discovery call.