Christmas Parties and Staff Gifts: What Can Your Business Claim?
As Christmas approaches, many businesses are planning Christmas parties and staff gifts to thank their teams. If you’re also buying gifts for clients, it’s worth checking how those costs are treated. Where you hold the party, who attends and what you give can all affect fringe benefits tax (FBT), income tax deductions and GST credits.
Where You Hold the Party Matters
A Christmas lunch at your workplace can have a different tax treatment from a celebration at a restaurant.
For a taxpaying business using the actual method to value meal entertainment, food and drink provided to current employees on the business premises on a working day are generally exempt from FBT.
However, an FBT exemption does not necessarily mean the cost is deductible. Christmas party entertainment that is exempt from FBT generally does not qualify for an income tax deduction or GST credits.
If employees’ partners attend, their benefits need to be considered separately. Costs relating to clients are generally outside FBT, but client entertainment is generally not deductible.
Understand the Less-Than-$300 Rule
An off-site Christmas party may qualify for the minor benefits exemption where the benefit costs less than $300 per person, including GST, and the other conditions are met.
The amount is only part of the test. How frequently similar benefits are provided and the surrounding circumstances also matter. A benefit costing exactly $300 does not meet the threshold.
Different rules can apply where your business uses an alternative meal entertainment valuation method, such as the 50:50 split method. It is worth checking your existing arrangements before relying on an exemption.
You can read more in the ATO’s guidance on minor benefits.
For examples of how the rules apply at work and at a restaurant, see the ATO’s Christmas party and gift examples.
A Christmas dinner and a gift
- $180 restaurant dinner per person. If the dinner qualifies for the minor benefits exemption, the entertainment cost generally won’t be deductible or eligible for GST credits.
- $120 hamper for each employee. The hamper may qualify for the same FBT exemption and can generally still be deductible. Any GST credit depends on the GST charged and your eligibility to claim it.
Apply the $300 threshold to the dinner and hamper separately. Giving them together can still matter when deciding whether each benefit qualifies for the exemption. See Example 3 in the ATO’s minor benefits ruling.
Staff Gifts May Be Treated Differently
A hamper or bottle of wine given to an employee to take home is generally treated differently from entertainment such as concert or sporting tickets.
An occasional non-entertainment gift costing less than $300, including GST, may qualify for the minor benefits exemption. The employment-related gift can generally still be deductible, with GST credits available where the usual requirements are met.
By comparison, an exempt entertainment gift, such as concert tickets, generally will not be deductible or qualify for GST credits.
What about gift cards?
An occasional retail gift card for an employee may qualify for the minor benefits exemption if it is worth less than $300 and the other conditions are met. A voucher for entertainment, such as cinema tickets, can have different deduction and GST consequences. The ATO’s minor benefits ruling includes a store voucher example.
What About Gifts for Clients?
Gifts to clients are generally outside FBT because they are not provided in respect of employment. The type and business purpose of the gift still matter.
A non-entertainment gift provided to maintain a business relationship or generate future business income may be deductible. Client entertainment generally is not deductible and generally does not qualify for GST credits.
The employee minor benefits threshold is not the test for whether a client gift can be claimed.
Christmas parties and gifts at a glance
| Expense | FBT | Income tax deduction | GST credits |
|---|---|---|---|
| Christmas lunch at work on a working day | Food and drink for current employees are generally exempt under the actual method | Generally unavailable for exempt entertainment | Generally unavailable for exempt entertainment |
| Staff Christmas party at a restaurant | May qualify for the minor benefits exemption if it costs less than $300 per person and the other conditions are met | Generally unavailable if exempt | Generally unavailable if exempt |
| Staff hamper or bottle of wine to take home | May qualify for the minor benefits exemption if the gift costs less than $300 and the other conditions are met | Generally deductible | May be available if GST was charged and the business is eligible |
| Non-entertainment gifts for clients | Generally outside FBT | May be deductible if given for a business purpose | May be available if GST was charged and the business is eligible |
| Entertaining clients | Generally outside FBT | Generally unavailable | Generally unavailable |
The $300 threshold includes GST. Meal entertainment valuation methods, such as the 50:50 split method, can affect the FBT treatment.
Keep Clear Records of Your Spending
Keeping a little extra information with your receipts can make it easier to work out the correct treatment later.
Your records should include:
- Invoices and receipts showing the GST charged
- The date and location of the event
- Who attended, including employees, partners and clients
- The cost per person and how it was calculated
- Details of gifts, their recipients and their business purpose.
Recording staff entertainment, client entertainment and non-entertainment gifts separately can also make your accounts easier to review. The ATO explains the GST treatment further in its guidance on GST and fringe benefits.
If staff, partners and clients are all on the same restaurant bill, keep an itemised invoice and note which group each guest belongs to. This gives your accountant the information needed to work out each group’s share. See the ATO’s guidance on entertainment for employees and non-employees.
Before booking your Christmas celebration or ordering gifts, it is worth checking how the costs will be treated. Understanding the difference between an FBT exemption, a tax deduction and a GST credit can help you plan your spending and avoid surprises later. If you are unsure what applies to your business, MKG Partners can help you work through the details.
