Are Christmas Gifts Tax Deductible?

🎄🎅As we come into the “silly season” let us share with you some thoughts on what the ATO may consider a deductible expense and what they may not.🎄Entertainment, and FBT can be a minefield or rabbit warren, and a small change in the circumstances of the situation, can change the taxation treatment.

Staff Christmas Party

Generally if a party is held on business premises, on a workday, during work hours, and no alcohol is provided, the party would be tax deductible. Where the business is registered for GST, they would also be entitled to claim the GST back on the cost of the Christmas party.

If the party is held off premises then it unfortunately may not be tax deductible, as it would be considered "entertainment". However, if the business was liable and had paid Fringe Benefits Tax on the event, the event would be deductible in full. Depending on how the expense is treated, you may be able to choose to bring the party under the FBT legislation to make it deductible. Speak to your registered tax agent for your specific circumstances.

Further Fringe Benefits Tax details:
The Minor Benefits Exemption allows a business to avoid paying FBT on a benefit provided to your employee or associate such as an off premises Christmas Party where the benefit given meets certain criteria. A minor benefit is one that is:

• Provided to staff or their associates, for example their spouse or partner
• Provided on an “infrequent” or “irregular” basis
• Not considered a reward for services, and
• Costs less than $300 “per benefit” inclusive of GST.

Where the Minor Benefits Exemption applies, no FBT is payable, however, the expense is still not a tax deduction. (As it falls under the FBT legislation).

Christmas Gifts

Staff gifts may subject to Fringe Benefits Tax, dependent on their nature, as they are a non-cash benefit provided to your staff. Staff gifts may fall into the Minor Benefits Exemption (described above). Therefore, staff gifts which are considered "entertainment" and under $300 might not be tax deductible, and staff gifts considered "entertainment" and $300 and over may be subject to FBT. It is important to note that the definition of "entertainment" when considering FBT can capture many things, including some gift cards, food, event tickets.

Final Thoughts

If any of this seems confusing please feel free to reach out with your specific situation, and we can navigate all the rules for you.