You decide to throw a Christmas party for the staff. Can you claim this as a business expense? Does FBT apply? This depends on who attends and where the party is being held. The provision of a Christmas party for an employee may be a minor benefit and exempt from FBT if the cost of the party is less than $300 per employee and certain conditions are met. This provision also applies to the employee’s associate (family member) or spouse.
The cost of providing a Christmas party is income tax deductible to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT cannot be claimed as an income tax deduction. GST credits can only be claimed to the extent that a cost is tax deductible.
Therefore, if you cannot claim it as a deduction, you cannot claim the GST credits either. The ATO have guidelines in regards to FBT as it relates to different business structures. See the link below for detail relating to small business (NAT 71590), government (NAT 71589), nonprofit organisations (NAT 71586) and tax-exempt bodies (NAT 1054 and 3192).
- ATO – FBT and Christmas parties
Minor Benefits Exemption
The $300 threshold is applied separately to each benefit, gift or party. So for example, an employee could attend the workplace party at a cost to the employer of $280 and receive a gift worth $250, but because these amounts are treated separately there are no FBT implications.
The provision of a gift to an employee at Christmas time, such as a hamper, may be a minor benefit that is an exempt benefit where the value is less than $300. Where the gift is given at the Christmas party, each benefit can be considered separately.
Christmas Gifts for your Clients and Employees
Are gifts to your employee, clients and suppliers claimable? Gifts may be classified as “entertainment”. For gifts such as wine, food, hampers, vouchers, etc, these are not considered to be entertainment. If the gift is a minor benefit (i.e., less than $300 value), then yes, the gift is tax deductible, and therefore GST is claimable for employees and their family members, clients and suppliers. No FBT applies to gifts of less than $300. For gifts over $300, FBT may apply for employees and their family members, but FBT does not apply to clients or suppliers. Gifts such as a holiday, membership to a club, or tickets to a theatre, sporting or musical event are considered to be entertainment. For minor benefits, as above, the gift is tax deductible for employees and their family and no FBT applies. However, for clients and suppliers, the entertainment gift is NOT tax deductible, and no FBT applies.
Giving your clients a gift at Christmas is a personal choice that you as the business owner makes. Be aware that some clients may not be allowed to accept gifts due to their business’s Code of Conduct (e.g., government workers). We remind you that the topic of entertainment, tax deductibility and fringe benefits tax is complex and not always straightforward. Check with your tax agent if in doubt and refer to the ATO website for detailed guidance.
(source: The Institute of Certified Bookkeepers)