Planning to celebrate the Season in style? With Christmas and the end of the working year right on our doorstep, most of us are floating in a sea of lunches, gift-giving and probably a few too many festive beverages! While we all know it as the Silly Season, there might be a Grinch-like part of you wondering about the tax implications of all those festivities… Keep reading – we’ve got you covered!
There are three main areas of tax that come into play:
- Income Tax
- Fringe Benefits Tax
- GST
Remember, any non-cash benefits you provide to a (current, past or future) employee or their associates (spouses and children) may be subject to fringe benefits tax. Fringe benefits are very common around Christmas time for most businesses. (Get up to speed on FBT with our articles Head in the sand about FBT? It’s not as scary as it sounds! and FBT Exemptions and Exclusions ).
The most essential thing to remember is to keep detailed records of your costs. That way they can be easily identified at a later date to ensure your tax deductions are maximised and any FBT exposure is minimised.
Christmas Parties
Ah, the good old Christmas Party! It can be a great way to kick off the holiday season and celebrate the year’s achievements. Whether you love them or hate them, it’s worth being across the tax implications which are diverse.
FBT
Christmas parties are treated like meal entertainment that is provided at other times during the year. The portion relating to employees is generally subject to FBT, with a couple of exceptions:
- Minor benefits (costing less than $300 including GST per employee and where certain conditions are met) are exempt fringe benefits.
- Exempt property benefits include benefits provided to current employees on work premises on a normal working day.
Below is a summary of how FBT applies to Christmas parties.
| Type of Event | Subject to FBT? |
| Off-site (e.g. at a restaurant) |
|
| On the business’ premises on a normal working day |
|
An exemption is also available for taxi travel where it is provided with meal entertainment (eg. a Christmas party), and the travel is a single trip that begins or ends at the employee’s place of work.
Income Tax
The cost of providing a Christmas party for employees and their associates is deductible for income tax purposes only to the extent that it is subject to fringe benefits tax (FBT). Therefore, any costs that are exempt from FBT (for example as a result of applying the minor benefits exemption or exempt property benefits) cannot be claimed as an income tax deduction.
The cost of providing a Christmas party for non-employees (eg. clients or suppliers) would normally be considered as entertainment and therefore not deductible for income tax purposes. There is some wiggle room where an event is for “promotion and advertising”, which could make the expenditure deductible, but the circumstances would need to be carefully considered before claiming a deduction.
GST
GST can only be claimed when the cost of the benefit is tax deductible. Therefore, GST cannot be claimed on Christmas party costs that relate to employees where an exemption applies, or to any non-employees (even if there is GST included in the price).
| RECORDS TO KEEP: Christmas Parties |
|
Staff gifts
Gift vouchers, movie tickets, a bottle of red or a traditional hamper? So many choices!
FBT
Generally, Christmas gifts to employees (that are not linked to performance) are taxable fringe benefits, although the minor benefits exemption may apply where the GST-inclusive value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Income Tax
The cost of staff gifts is deductible for income tax purposes only to the extent that it is subject to FBT.
GST
GST can only be claimed when the benefit is subject to FBT. If an exemption applies, GST cannot be claimed even if there is GST included in the price.
Also remember that you can’t claim GST on the purchase of gift cards (a very common mistake!). Gift cards are like cash, so the GST only arises when the end product is actually purchased (ie. when the gift card is used). If you’re giving the gift card to your employee, then they will be the one purchasing the end product, so you won’t actually claim any GST.
| RECORDS TO KEEP: Staff Gifts |
|
Client and Supplier gifts
Gifts to clients and suppliers are generally deductible as they are considered a normal cost of carrying on a business. Keep in mind, if the gift is ultimately given to someone as a result of a personal friendship or relationship, then the gift may be considered private or domestic in nature and therefore not deductible for tax purposes.
Again, be careful not to record GST on the purchase of gift cards.
| RECORDS TO KEEP: Client and Supplier Gifts |
Be careful to specify in your accounting records that the gift is for a client/supplier so it doesn’t mistakenly get treated as a staff gift which might be subject to FBT. |
Staff Christmas Bonuses
Clients are sometimes surprised to find out that Christmas bonuses paid to employees need to be recorded as wages.
When an employer pays a cash bonus to an employee:
- The employer must:
- Record the bonus as wages in their payroll records;
- Withhold tax (PAYG Withholding) from the bonus;
- Pay superannuation guarantee on the bonus (unless the bonus relates solely to overtime).
- The employee will include the bonus as income in their tax return.
If in doubt about the implications of a particular benefit or gift, please contact our office so that we can clarify, leaving you free to enjoy the festivities safe in the knowledge that you have things covered.
