Planning your end-of-year celebrations? While it’s the season to be jolly, business owners need to be savvy about the tax implications of Christmas parties and gifts. Let’s break down what you need to know about Fringe Benefits Tax (FBT) to keep both your team and the tax office happy.
Christmas Parties: Location Matters
Your choice of party venue can significantly impact your FBT obligations:
Parties at Your Business Premises
- If you host the party at your workplace on a working day, you’re in luck! The cost of food and drinks for current employees is exempt from FBT.
- However, if you invite employees’ partners or family members, their portion may be subject to FBT if the cost per head exceeds $300.
Off-site Celebrations
- Holding your party at a restaurant or venue? The $300 per head threshold becomes crucial.
- If you keep the cost under $300 per person (including GST), you can usually avoid FBT under the minor benefits exemption.
- Go over $300 per head, and you’ll need to pay FBT on the full amount for both employees and their guests.
Christmas Gifts: Choose Wisely
The type of gift you choose affects your tax position:
Non-Entertainment Gifts (Best Option)
- Items like hampers, wine, gift cards, or promotional items under $300 are:
- Exempt from FBT
- Tax deductible for your business
- Eligible for GST credits
- These represent the best value from a tax perspective
Entertainment Gifts
- Things like movie tickets, sporting events, or concert tickets:
- Under $300: No FBT applies, but you can’t claim tax deductions or GST
- Over $300: FBT applies, and you still can’t claim deductions or GST
Practical Tips for Business Owners
- Track Costs Carefully
- Keep detailed records of per-person costs for both parties and gifts
- Remember to include all elements: food, drinks, entertainment, and venue hire
- Consider Timing and Location
- A workplace party during business hours can be more tax-effective
- If going off-site, carefully monitor per-head costs to stay under the $300 threshold
- Plan Gift Strategy
- Consider giving non-entertainment gifts to maximise tax benefits
- Keep gift values under $300 to avoid FBT
Contractors and Clients
Good news! When you invite contractors, clients, or suppliers:
- No FBT applies to their portion of the party
- However, you can’t claim these costs as a tax deduction
- The same applies to gifts for clients and contractors
Making the Most of Your Christmas Celebrations
From a purely tax perspective, the most cost-effective approach would be to:
- Host your party on business premises during work hours
- Keep off-site celebrations under $300 per head
- Choose non-entertainment gifts under $300
- Keep accurate records of all costs and attendees
However, the most tax-effective option isn’t always the best choice for your business. Christmas celebrations are a valuable opportunity to show genuine appreciation to your team, partners, and clients. A well-planned event can boost morale, strengthen relationships – benefits that often outweigh the tax implications.
Different types of celebrations offer different advantages. An elegant restaurant dinner might be perfect for impressing clients, while a casual office party might encourage more team bonding. The key is planning ahead and keeping track of your expenses to avoid any surprises come tax time.
If you’re unsure about how FBT applies to your planned celebrations, don’t hesitate to reach out for advice. Most importantly, after a year of hard work, take this opportunity to relax, celebrate your achievements, and enjoy some well-deserved fun with your team!