As the holiday season approaches, it’s the perfect time to plan Christmas celebrations, show appreciation to your team, and foster goodwill with clients and suppliers—all while ensuring your approach is tax-savvy. At DFK Everalls, we understand that tax planning might not be the highlight of your festive preparations, but getting it right can prevent unwanted surprises once the festivities wind down.

Let’s break down the essentials so you can focus on celebrating, knowing your FBT and tax matters are covered. 

FBT on Christmas Parties

• FBT-exempt small business threshold: If your business is classified as a small business (with an annual turnover of less than $10 million), Christmas parties held on business premises may be exempt from FBT for employees and their associates (e.g., family members).
• Minor benefits exemption: If the cost of the party is under $300 per person (including food, drink, and entertainment), it may be exempt from FBT under the minor benefits exemption. This applies if the party is not held on the business premises.
• Location and attendee considerations:
  • If the party is held offsite (e.g., at a restaurant), FBT may apply if the cost per employee or associate exceeds $300.
  • If the party is held onsite at the business premises, FBT is generally exempt for employees.
• Employees vs Clients/Suppliers: Entertainment provided to clients is not subject to FBT. However, businesses cannot claim a tax deduction or GST credit for expenses related to entertaining clients.

Tax Deductibility of Christmas Party Expenses

• Expenses incurred for employees at Christmas parties may be deductible if they attract FBT. However, if the minor benefits exemption applies, these expenses are typically not tax-deductible or eligible for GST credits.
• Expenses related to entertaining clients or suppliers are not tax-deductible or eligible for GST credits.
• If you provide gifts in addition to the party, the costs should be assessed separately for FBT and deductibility purposes.

Gifts for Employees

• FBT Implications: Gifts under $300 per employee can generally be considered a minor benefit and may be exempt from FBT. To qualify, gifts must be infrequent and irregular, so year-end gifts often meet this criterion.
• Types of Gifts and FBT:
  • Non-entertainment gifts (e.g., hampers or wine): Typically qualify for the minor benefits exemption and are tax-deductible. 
  • Entertainment gifts (e.g., tickets to events or experiences): These may be subject to FBT and are generally not deductible.
  • Gift cards: Gift cards and vouchers typically depend on what the employee is able to redeem. Gift cards for restaurants or experiences may be subject to FBT and are generally not deductible. However, gift cards to a furniture, electronic or grocery store typically qualify for the minor benefits exemption and are tax-deductible. Please note gift cards do not have GST have them.
• Tax Deductibility: Non-entertainment gifts exempt from FBT are typically deductible, while entertainment gifts are generally not.

Gifts for Clients/Suppliers

• Gifts given to clients/suppliers, unlike entertainment, are generally tax-deductible, provided they are not entertainment in nature.
• Type of Gift Matters: Non-entertainment gifts (e.g., branded merchandise, wine, or food hampers) are tax-deductible, whereas entertainment gifts (e.g., event tickets or holiday packages) are not.
• No FBT: FBT does not apply to gifts provided to clients/suppliers.

Record Keeping and Documentation

• Accurate records are essential to substantiate FBT exemptions, especially for expenses under the minor benefits rule.
• Detailed records of event costs, attendee lists, and the nature of each expense (e.g., food, drink, venue hire) will aid in assessing FBT and tax deductibility.
• Documenting the purpose of gifts (e.g., to staff, associates, or clients) helps separate expenses that qualify for tax deductions from those that do not.

With thoughtful planning, your holiday celebrations can be merry, stress-free, and financially smart. Whether it’s organizing a Christmas party or choosing the perfect gifts, DFK Everalls is here to help you navigate the details with ease. Reach out to us today, and let’s make sure your year-end festivities are all about celebration—not complications!