Tax planning becomes crucial during this time of the year as we continue to field numerous enquiries about the tax implications of regular Christmas gifts and parties. By engaging in effective tax planning, you can guarantee that these expenses won’t cost you more than necessary. Here, we have examined the tax treatment of typical Christmas items.
Fringe Benefits Tax (FBT), Income Tax and GST
The tax implication for the above costs will differ depending on whether you are a tax-exempt employer or a typical tax-paying employer and whether, as an employer, you use the 50/50 split method or the actual cost method for FBT purposes. For the purpose of this article, we assume you are a normal tax-paying entity, and the 50/50 split method has not been elected.
Christmas Gifts
Non-recreational gifts (such as a Christmas hamper, a bottle of wine, gift vouchers, etc.) provided to employees are generally subject to FBT unless they can be considered exempt minor and infrequent benefits. The gift must cost less than $300 per employee (GST inclusive). This cost will also generally be tax-deductible to the employer, and the GST credit can be claimed.
Recreational gifts (such as movie tickets, sporting event tickets and holiday accommodation) will be subjected to the same FBT treatment as above. The critical difference is that no FBT has been paid, no income tax deducted, and no GST credit will be allowed, as these items generally constitute entertainment.
Christmas Party
The tax implications will depend on the location and who is attending the party. However, in the simplest form, the cost of the Christmas party is generally subject to FBT unless it can be considered as an exempt minor benefit (i.e. the cost of the party is less than $300 per employee) or the cost is related to clients. Below is a summary showing the FBT, Income Tax and GST treatment of the Christmas party cost using the ‘actual cost’ method.
What happens if a Christmas gift is provided at the party?
In its Taxation Ruling TR 2007/12, the ATO indicated that you must determine the FBT implication of each benefit provided separately. This means that the ATO accepts that each benefit provided in connection with the Christmas party (with a cost of less than $300) will still qualify as an exempt minor benefit, despite the combined cost of the gift and party is more than $300.
Using the ‘actual cost’ method
| Christmas Party | Subject to FBT | Income Tax (Deductible) | GST (Claimable) |
| Held at work premises – employee (no minimum cost limit) | No | No | No |
| Held at work premises – associates of employee (‘per head’ cost less than $300) | No | No | No |
| Held at work premises – associates of employee (‘per head’ cost more than $300) | Yes | Yes | Yes |
| Held at work premises – clients | No | No | No |
| Held off work premises – employee and their associates (‘per head’ cost less than $300) | No | No | No |
| Held off work premises – employee and their associates (‘per head’ cost more than $300) | Yes | Yes | Yes |
| Held off work premises – clients | No | No | No |
It is an area that can be very confusing, so don’t hesitate to contact us if you want to clarify what you should do.
*Correct as of November 2015
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is for general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability is limited by a scheme approved under professional standards legislation.
