Planning a staff Christmas party or gifts? How the $300 minor benefit rule, on-premises parties and gifts to clients affect FBT, tax deductions and GST credits.
A Christmas party or a thoughtful gift is a great way to thank your team and clients. But the way you celebrate decides whether you pay fringe benefits tax (FBT), whether you can claim a tax deduction, and whether you can claim GST credits. Here is how the rules usually work for a business using the ATO’s standard approach to entertainment. For the general rules, see our guide to GST on entertainment expenses and FBT; this article focuses on end-of-year parties and gifts.
A benefit given to an employee (or their partner) that costs less than $300 per person including GST, and is provided infrequently, is usually an exempt minor benefit. No FBT is payable on it. The $300 limit applies to each benefit separately, so the party and a gift are tested on their own.
If you hold the party at your workplace on a working day and only current employees attend, the food and drink are generally exempt from FBT, whatever the cost per head. However, you cannot claim a tax deduction or GST credits for the costs.
The type of gift matters as much as the price:
FBT does not apply to gifts for clients. Non-entertainment gifts, such as a hamper or wine, are generally deductible and you can claim the GST, as long as the gift is made to help your business earn income. Entertainment gifts for clients, such as event tickets, are not deductible.
Some businesses donate to charity instead of buying gifts. Donations of $2 or more to a charity endorsed as a deductible gift recipient (DGR) are tax-deductible, as long as you receive nothing in return.
With a little planning you can thank your staff generously without an unexpected FBT bill. Keeping the party on site, or keeping costs under $300 per head and choosing non-entertainment gifts, is often the most tax-effective approach. If you are not sure how your celebration will be treated, contact us before you book.
