Christmas parties & gifts
Gifts - not entertainment
The costs associated with providing Christmas gifts (e.g. hampers, a bottle of whisky, wine, gift cards, perfume, etc) to clients will not give rise to any FBT liability but they will still be tax deductible to the business and GST input tax credits can be claimed, where appropriate.
Gifts provided to employees and their families will have FBT implications but they will also be tax deductible to the business and GST input tax credits can be claimed. However, as a general position where the gift has a value of less than $300 per person (e.g. $250 for employee and $250 for spouse) and it is a one off gift, it will be exempt from FBT as a minor benefit but will continue to be tax deductible with input tax credits available. Certain other gifts may be exempt from FBT where they fall within specific limited exemptions within the FBT legislation (e.g. airport lounge memberships, tools of trade, etc) regardless of cost.
Gifts - entertainment
Gifts which are considered entertainment generally include:
- Tickets to attend a theatre, live play, sporting event, movie, etc;
- Holiday airline ticket;
- Amusement centre pass.
Such gifts to employees and their families will have FBT implications but they will also be tax deductible to the business and GST input tax credits can be claimed. However, where the value of the gift is less than $300 per person and it is a one-off gift, it is exempt from FBT as a minor benefit and as a consequence is not tax deductible and no GST input tax credits can be claimed in respect of it.
Entertainment gifts provided to clients will not give rise to any FBT liability and will not be tax deductible to the business. No GST input tax credits can be claimed in respect of such gifts made to clients.
Functions
The correct tax treatment of costs associated with Christmas functions can be confusing. It will depend on the method used to value entertainment for FBT purposes. The following is a summary of the treatment of function costs.
| Actual Method | 50/50 Split Method | Register Method |
|
|
|
|
Xmas Party < $300 per head on or off business premises | Minor Benefit for employee & associate costs exempt from FBT. Not deductible. | Include all costs. | Include all costs. |
No FBT on client costs. Not deductible. | 50% subject to FBT & 50% exempt. | Register percentage subject to FBT. | |
| The portion of costs not included for FBT are non-deductible. | The portion of costs not included for FBT is not deductible. | |
Xmas Party > or = $300 per head on business premises | Exempt Benefit for employee costs. Not deductible. | Include all costs. | Include all costs. |
FBT is payable on associate costs. Associate's costs are deductible. | 50% subject to FBT & 50% exempt. | Register percentage subject to FBT. | |
No FBT on client costs. Not deductible. | The portion of costs not included for FBT are non-deductible. | The portion of costs not included for FBT is not deductible. | |
Xmas Party = or > $300 per head off business premises | FBT on employee & associate costs. Costs are deductible. | Include all costs. | Include all costs. |
No FBT on client costs. Not deductible. | 50% subject to FBT & 50% exempt. | Register percentage subject to FBT. | |
| The portion of costs not included for FBT are non-deductible. | The portion of costs not included for FBT is not deductible. |
Entertainment costs (e.g. Christmas party costs) are only tax deductible, and GST input tax credits only available, to the extent that FBT is paid on the costs.
