With the holiday season approaching, it is worth checking in on the tax implications of business expenses related to celebrations and gift giving to employees and clients.
Employees
For a Christmas function held off-site by a business for employees, for example at a restaurant, the related costs would usually be considered a fringe benefit. However, due to the minor benefits exemption, if the cost per employee is less than $300, no fringe benefits tax (FBT) is payable by the employer. Furthermore, the costs of a Christmas party are exempt from FBT if they are provided to current employees on business premises and during a working day. This does not extend to spouses or other guests. It is important to note that if the cost of the Christmas celebration is exempt from FBT, it isn’t tax deductible for income tax purposes, and GST credits cannot be claimed. For certain gifts provided to employees that may be exempt from FBT, they generally are tax deductible up to certain limits, and GST credits may be claimed.
Clients
As FBT only relates to benefits provided to employees and their associates, the costs of a party for clients or suppliers do not attract FBT. However, it is likely that these costs may not be tax deductible either. That being said, festive gifts provided to clients may still be tax deductible if there is a connection with producing income for the business.
The line between a gift and the provision of entertainment is not straight forward, so it is important to seek confirmation from your dmca adviser.
Charitable Donations
Tax deductions can only be claimed for gifts or donations to organisations which are registered deductible gift recipients (DGRs), which most major charities fall under.
To claim a tax deduction for a ‘gift’ it must meet the following conditions:
- Must be made to a DGR
- Must be a voluntary transfer for which you receive nothing in return (e.g. raffle or event tickets are not tax-deductible)
- Must be money or property
To avoid unexpected tax bills and remain compliant, we always recommend you seek advice to determine the FBT implications for your business. The rules are complicated, however we are here to help you.