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Christmas party and gifts and tax deductions
As we approach the holiday season, it’s good to refresh ourselves on the deductibility and fringe benefit tax (FBT) implications of expenses incurred in celebrating the spirit of Christmas with our employees and clients. There are plenty of ways businesses can express their appreciation this festive season.
The Christmas Party – At Work
The work Christmas party is one event employees look forward to all. Unfortunately, from a tax perspective, it’s not always a great outcome and where it is held has a large bearing on the tax implications to the business.
By holding the Christmas party on the business premises during a working day, meal entertainment benefits provided to employees and are exempt from FBT, regardless of their cost. Business looking to spend $300 or more (including GST) per person at their Christmas party may wish to consider restricting the event to employees only and holding it on-site during a working day.
If any associates (family and friends) of your employees attend, their costs are subject to FBT unless the minor benefits exemption applies. This means business seeking to avoid FBT will need to keep the cost of the event below $300 per person (including GST).
If clients attend an on-site Christmas party, meal entertainment costs will not be subject to FBT, but are also not income tax deductible and the business won’t be able to claim the GST input tax credits.
The Christmas Party – Away from Work
When a business holds the Christmas party at another location, if the cost is less than $300 per person (including GST) the business can avoid paying FBT under the minor benefits exemption. This applies to both employees and their associates attending the event.
The costs incurred will still not be tax deductible and the business won’t be able to claim the GST input tax credits.
Christmas gifts are treated differently depending on if they are given to:
Employees (and/or their associates)
Gifts given to employees (and/or their associates) are subject to FBT unless the $300 minor benefit exemption applies. The business is able to claim a tax deduction and claim the GST credits.
A deduction for income tax is applicable when gifts are given to a client or customer, provided the gift is deemed to contribute to generating future assessable income. These gifts are also not subject to FBT.
It is important to celebrate the festive season with employees, clients, and associates, it’s equally important for businesses to be mindful of the tax implications.
If you have any questions, please reach out.