The festive season is a great time to recognise clients and reward staff, but gifts and celebrations can trigger Fringe Benefits Tax (FBT) obligations if not managed correctly. The FBT implications of providing these benefits can often be complex and may result in unexpected costs that affect a business’s bottom line.
To avoid surprises, we encourage businesses to take a proactive approach in understanding and managing these obligations. This article highlights common scenarios and practical tips to keep your celebrations compliant.
Christmas parties, year-end functions & FBT
When assessing the taxable value of entertainment benefits for FBT purposes, consider:
- Who – Are the recipients employees, their associates, or clients?
- Where – Is the event on business premises or off-site?
- What – What costs are incurred (e.g., food, drinks, venue hire, entertainment, transport)?
- Cost Threshold – Are these costs greater or less than $300 (GST inclusive)?
- Should costs be considered individually or aggregated? This is critical for the minor benefits exemption.
- Valuation method – Will you use the Actual Value Method or 50/50 Method.
FBT considerations when giving gifts
The tax treatment of gifts depends on several key factors, including whether the gift is:
- Entertainment or non-entertainment in nature.
- Provided to employees, their associates, or clients.
- Valued above or below $300 (GST inclusive).
- If under $300, is it infrequent and irregular?
FBT implications of gifts, parties and events
Minor Benefits Exemption:
- Applies where the value of the benefit is less than $300 per employee, provided infrequently and irregularly.
- Example: A $250 hamper given once a year is exempt.
Property Benefits:
- Food and drink consumed on business premises during a working day is generally exempt from FBT.
Entertainment Costs:
- Off-site parties and alcohol usually attract FBT unless covered by the minor benefits exemption.
Entertain expenditure impacts on Income Tax and GST
- Income Tax Deduction: entertainment amounts are not tax deductible unless subject to FBT.
- GST: input tax credits are only available in relation to entertainment expenditure when subject to FBT.
- Any portion not subject to FBT is not deductible for income tax and no GST credit applies.
Practical tax tips for christmas parties, staff gifts and more
- Keep detailed records of costs per employee and per event.
- Separate entertainment from non-entertainment items for correct tax treatment.
- Review whether benefits qualify for the minor benefits exemption to reduce FBT liability.
- Consider whether inviting associates or clients changes the FBT outcome.
- Plan ahead to make your celebrations enjoyable and compliant.
If you’d like tailored advice or a review of your arrangements, contact our tax consultants today by submitting the form below.
