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FBT and Xmas – How to ensure you can claim tax deductions
December 8, 2022 |
As we are head towards the Xmas party season and end of year business activities, business owners need to consider the tax implications that relate to customer gifts, staff parties and staff end of year gifts. This article looks at some of the tax effective ways you can spend money at Xmas and claim tax deductions.
Reward customers/ clients and Tax deductions
Should you entertain your client or send them a gift? If you entertain your clients in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment.
But, if you send your customer a gift, then that is tax deductible if there is an expectation that the business will benefit (assuming the gift does not amount to entertainment.) If you decide to reward your clients with a gift, you should consider which customers add more value and who is likely to refer future clients to you. If you clients are active on social media, why not reach out to them as ask them if you could also make a donation on behalf of your customers. Donations to deductible gift recipients (DGRs) above $2 are often tax deductible and can make an active difference to a cause.
How to reward your staff and team members
Christmas is expensive. Some businesses simply can’t afford to do much because cash flow is too tight. Expectations are high so if you are doing something then it’s best not to exacerbate cashflow problems and take advantage of any tax benefits or concessions you can.
Christmas gifts for staff | FBT & PAYG
You can provide your staff with a gift that meets the ‘minor benefit’ threshold and avoid paying FBT. $300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well at a rate of 47%. This gift must be a one off or ad hoc, so providing a monthly membership or multiple gift vouchers that are worth more than $300 will trigger a FBT event.
Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is subject to the superannuation guarantee.
Hosting an office Xmas party – Fringe Benefits Tax
Xmas parties hosted by you for your staff are considered a ‘fringe benefit’ and you will be required to pay FBT unless you host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Here are some further tips:
- Taxi travel that starts or finishes at an employees workplace is FBT exempt
- If you host your Xmas party outside the office, ensure you do not spend more than $300 per head to avoid paying FBT. Note that you cannot claim GST credits or tax deductions if there is no FBT payable
- If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses
- If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event.
Hosting Xmas parties or rewarding clients can have tax benefits for your business. You should also consider the importance that investing in clients and staff may have on your future profitability and goodwill.
The table below, sets out the rules that apply to FBT, Tax deductions and GST Credits*
*For GST registered businesses (not tax exempt) that are not using the 50-50 split method for meal entertainment.
| Exempt from FBT? | Tax deductible | GST credits | |
| Christmas party on employer premises on a weekday | |||
| Employees | Yes | No | No |
| Associates of employee (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
| Christmas party (employer premises on a weekend or external venue) | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
| Christmas gifts (assuming the gift doesn’t involve entertainment) | |||
| Employees | If <$300 per head | Yes | Yes |
| Associates (spouses etc.) | If <$300 per head | Yes | Yes |
| Customers | N/A | Yes | Yes |
| Christmas lunch with customer at external venue | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
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