Tax Tips for Christmas Gifts & Holiday Parties

By Defy Gunadi November 10, 2024 | Tags: FBT, Small Business

With the 2024 Melbourne Cup behind us, it’s time to prepare for the next major celebration: the Christmas party. As we head into the holiday season and wrap up end-of-year business activities, it’s essential for business owners to consider the Fringe Benefits Tax (FBT) implications for the 2025 FBT year. This applies not only to Christmas parties but also to customer gifts, staff gatherings, and year-end gifts for employees. Office Christmas parties typically start in November, following the Melbourne Cup, so we thought this would be the perfect time to remind clients of tips and tricks for managing office parties with FBT in mind. In this article, we’ll explore some tax-effective strategies to make the most of your Christmas spending while maximizing tax deductions.

Gifts Provided to Customers or Clients

Businesses can claim an income tax deduction for gifts provided to clients or customers if the gift is given with the purpose of generating future income. In these cases, the expenses are considered necessary for carrying on business activities aimed at producing assessable income, and such gifts are not subject to Fringe Benefits Tax (FBT).

However, if the gift involves entertainment—such as movie or sports tickets—it will not attract FBT, but neither will it qualify for an income tax deduction or GST input tax credits. Therefore, to claim a tax deduction on client or customer gifts, businesses should choose non-entertainment items, as entertainment gifts are not eligible for FBT exemption or tax deductions.

Gifts for Employees

Christmas is a season of giving, and nearly all Australian businesses mark the occasion by offering gifts or hampers to their employees. Whether it’s a thoughtful hamper, a retail gift card, or tickets to a popular event, these gestures show appreciation and foster a festive atmosphere. However, it’s important for employers to consider the Fringe Benefits Tax (FBT) implications associated with these gifts, as the tax treatment can vary based on the type of gift and its value.

Unlike meal entertainment, gifts like hampers or retail cards given to employees at a Christmas function are generally not classified as entertainment. If the gift doesn’t fall under tax-exempt body entertainment benefits, it may still be subject to Fringe Benefits Tax (FBT) unless it qualifies for the minor benefits exemption.

For example, if a business gives each employee a gift hamper worth under $300 at a Christmas event, and the gift meets the minor benefits exemption criteria, it won’t be subject to FBT. Additionally, this gift can be claimed as a tax deduction, and GST credits can be applied.

However, entertainment-related items, such as movie or sports tickets, are classified as different types of fringe benefits (like expense payment or property fringe benefits) and are subject to FBT unless they too qualify for the minor benefits exemption.

When calculating FBT obligations, employers should separate the cost of meal entertainment from any gift provided at the event. While each expense may meet the minor benefits exemption on its own, they should be reviewed together to ensure it’s reasonable to apply the exemption.

Cash Gifts to Employees

When a business chooses to give cash gifts to employees during the holiday season, these gifts are treated differently than non-cash items. Cash gifts are considered an extension of the employee’s salary or wages. As a result, they trigger PAYG (Pay As You Go) withholding obligations, meaning the business must withhold income tax from the gift amount, just as they would with regular salary payments. Additionally, cash gifts are also subject to the Superannuation Guarantee, which requires the employer to contribute a percentage of the gift amount toward the employee’s superannuation fund. This makes cash gifts more costly for the business than other types of gifts, as they carry both tax and superannuation obligations. Employers considering cash gifts should weigh these additional costs and may want to explore alternative gift options that are not subject to the same requirements.

Some Key Information About Christmas Party

Aside from gift-giving, Christmas and holiday parties are a beloved tradition for many businesses. Some companies go all out, hosting extravagant celebrations at upscale venues or reserving corporate boxes, while others take a more modest approach, offering food and drinks within the office. Regardless of your party style, there are essential tax considerations every business should keep in mind for holiday gatherings. Below, we’ve outlined the key information you need to know to make your holiday party both memorable and tax efficient.

FBT Exemption for On-Site Parties: Costs related to Christmas parties, such as food and drinks, may be exempt from Fringe Benefits Tax (FBT) if the event is held on a working day at your business premises and is exclusively for current employees. This property benefit exemption applies only to employees, so FBT will still apply for associates like partners or children. Hosting a Christmas party in the office on a workday is an effective way to avoid FBT, allowing you to celebrate with your team without triggering additional tax obligations, regardless of the amount spent per person.
Tax Deductibility of Party Expenses: The cost of hosting a Christmas party is only tax-deductible to the extent that it’s subject to FBT. This means that expenses exempt from FBT—such as minor benefits or exempt property benefits—won’t be eligible for an income tax deduction or GST credits.
Claiming Deductions for Extravagant Parties: If your business hosts a more extravagant Christmas party that exceeds the $300 per person minor benefit limit, it may incur FBT. However, this also provides an opportunity to claim a tax deduction and GST credits on the full cost of the event, which can help offset the expense. By balancing the benefits of a memorable celebration with the potential tax deductions, businesses can make the most of their holiday spending.

Tax Treatment of Entertainment in a Glance

	Less than $300		$300 or more
Location	On-site	Off-site	On-site	Off-site
Employee	Exempt from FBT:Minor benefit Exempt property benefitNo tax deduction or GST input tax credit available	Exempt from FBT:Minor benefitNot an exempt property benefitNo tax deduction or GST input tax credit available	Exempt from FBT:Not a minor benefitExempt property benefitNo tax deduction or GST input tax credit available	Subject to FBT:Not a minor benefitNot an exempt property benefitTax deductible and GST input tax credit available
Associate	Exempt from FBT:Minor benefitNot an exempt property benefit No tax deduction or GST input tax credit available		Subject to FBT:Not a minor benefitNot an exempt property benefitTax deductible and GST input tax credit available
Clients	Not subject to FBTNo tax deduction or GST input tax credit available

Source – The Tax Institute

Conclusion

The holiday season can be costly, and for many businesses, Christmas expenses can put additional strain on cash flow. Not every business has the budget for extravagant celebrations, especially with high expectations from clients and staff alike. However, with careful planning, you can manage these costs strategically, making the most of available tax benefits and concessions. This approach can help ease the financial impact while still delivering a memorable celebration.

If you’re uncertain about how to navigate the complexities of tax obligations during the holiday season, our Investax business tax specialists are here to help. Contact us to discuss how we can support your business in managing holiday expenses and maximizing tax benefits effectively.

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