Can I claim it? Christmas Parties and Client Gifts

Posted 19 Nov '20

It’s beginning to look a lot like the silly season! Our offices are soon to be laden with tinsel, holiday cards and way too many sweets, we hope yours are too.

If you’re buying your staff and clients a gift this year or throwing a party, it’s helpful to understand what’s deductible, what’s not and what may attract Fringe Benefits Tax (FBT).

Are Christmas gifts tax deductible?

Employees & their family

The gift is tax deductible & GST can be claimed if it is:

– A one-off gift, defined as ‘infrequent’
– Not classed as entertainment
– Under $300 (GST inclusive)

Clients, suppliers or contractors

Yes. If the gift isn’t classed as entertainment, then it is tax deductible and GST can be claimed.

What is entertainment?

To the ATO, providing entertainment means:

– food, drink or recreation
– providing accommodation or travel in connection with such entertainment

Recreation

Recreation includes amusement, sport and similar activities like theatre or movie tickets, a cruise, game of golf etc.

To help you decide

Client, suppliers or contractors

Employees & their family

Deductible Christmas Gift Ideas for employees

– Gift voucher (groceries, health & wellness, books etc)
– Wine or champagne
– Flowers
– Hamper
– Skincare/beauty products
– Perfumes
– Computer/TV equipment
– Plants (who doesn’t love indoor plants in 2020)

Are Christmas parties’ tax deductible?

In short, probably not. Unless you’re planning on having it on a workday, at your business premises, with a light meal, no alcohol, and only employees and/or clients attending.

When the party is held off-site and the cost per employee/associate is less than $300 (inc GST), it will be exempt from FBT, however no tax deduction or GST credit can be claimed.

Why would I want my entertainment to be minor and infrequent?

You would want your gifts to be minor and infrequent because there is an exemption from having to pay fringe benefits tax on entertainment fringe benefits which are irregular and under the value of $300.

Let’s give the example some numbers, say you spend $1,100 on a cruise for your employee. This is over $1,100 you will be up for FBT. We won’t go into the calculations but the FBT on a $1,100 entertainment gift actually is $1,076.39. Ouch!

Would you now be able to claim it as a tax deduction and get your GST credits back? Correct. The amount of cashback on this would be around $725. Leaving you net out of pocket for the gift $1,453.47. So the $1k cruise ends up costing your business an extra ~$350.

Whilst that doesn’t sound much, we’ll let you do the quick math if you start multiplying it by of 5, 10 or 20 employees!

Interested in more info?

For Christmas party scenarios and their tax treatment visit the ATO website here.

Above all else, we hope you enjoy your end of year celebrations anyway you see fit!