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Business Tax Tip – ATO Staff Christmas Party & Gifts for staff and clients – What is claimable?
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Published on Thursday, 14 December 2023 12:49
For business, thanking staff and clients with a gift is common for Christmas and birthdays. What is allowable and tax-deductible and when does FBT apply?
Here is where the difficulty begins!
Tax Determination TD 2016/14 says –
- Yes, a taxpayer who carries on a business is entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for an outgoing incurred on a gift made to a former or current client if the gift is characterised as being made for the purpose of producing future assessable income.
Christmas Parties and Gifts
Christmas Parties
If your business holds a Christmas party:
- On a working day, on your business premises, and only for your current employees, you don’t pay fringe benefits tax (FBT) for the food and drink;
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Off your business premises, or the party includes associates of employees (such as their partners), you don't pay FBT if the party is a minor benefit – that is, the cost for each person is less than $300 and it would be considered unreasonable to treat it as a fringe benefit;
- That includes clients, you don't pay FBT for the costs relating to the clients.
Christmas Gift
If you give your employees a Christmas gift, you don't pay FBT if the value of the gift is less than $300 per person and it would be considered unreasonable to treat it as a fringe benefit.
If the Christmas party is not subject to FBT, you can't claim income tax deductions for the cost of the party.
Example: Christmas party on business premises
A company holds a Christmas lunch on its business premises on a working day.
- Employees, their partners and clients attend.
- The company provides food and drink, and taxi travel home.
- The cost per head is $125.
Entertainment is being provided
A party for employees, associates and clients is entertainment, because the purpose of the function is for the people attending to enjoy themselves.
Employees – No FBT, exemption applies
The employer doesn't pay FBT for the:
- Food and drink for employees, because it is provided and consumed on a working day on the business premises;
- Taxi travel, because there is a specific FBT exemption for taxi travel directly to or from the workplace.
Associates – No FBT, exemption applies
The employer doesn't pay FBT for the food, drink and taxi travel provided to the employees' partners (associates), because it is minor benefit – that is, it has a value of less than $300 and it would be unreasonable to treat it as a fringe benefit.
Clients – no FBT
There is no FBT on benefits provided to clients.
Income tax and GST credits
The employer can't claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates or clients.
Accounting
Businesses should maintain separate accounts in the general ledger for recording the above transactions to ensure that the correct income tax, GST and FBT treatment is applied.
Which benefits provide the best tax outcome?
Generally, it is considered that the best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 inclusive of GST per staff member, as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed.
Employee On-costs
Benefits that are exempt from FBT are not regarded as taxable wages for payroll tax, superannuation guarantee and workers compensation purposes, which results in a saving of these employee on-costs.
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