FBT on Work Christmas Parties & Gifts
As the end of the year approaches, businesses are gearing up for the festive season, which means planning the annual Christmas party and showing appreciation with gifts. While the cheer is high, so too are the complexities of Fringe Benefits Tax (FBT).
Getting the FBT treatment wrong can turn a simple celebration into an unexpected tax bill. As your trusted advisors at Ascent Accountants, here is a breakdown of the key tax rules, with a focus on the crucial $300 per person limit, to ensure your end-of-year generosity is tax-effective.
The critical $300 minor benefit threshold.
The Minor Benefits Exemption is your best friend for managing FBT. A benefit is generally exempt from FBT if its total notional taxable value is less than $300 (GST inclusive) per person, and it is provided infrequently and irregularly.
Christmas parties (entertainment)
The location and cost of your party are the key factors for FBT.
| Scenario | Cost Per Head | FBT Applies? | Income Tax Deduction? | GST Credits? |
|---|---|---|---|---|
| Off-site Party (Restaurant, Venue, etc.) | Under $300 | No (Minor Benefit Exemption) | No | No |
| Off-site Party (Restaurant, Venue, etc.) | $300 or more | Yes | Yes | Yes |
| On-site Party (Business Premises, Working Day) | Any cost | No (exempt property benefit for employees) | No | No |
Recap:
- Under $300 per head: if you host your party off-site (e.g. at a restaurant) and the GST-inclusive cost per person is less than $300, the event will generally be FBT-exempt under the minor benefits rule. However, the cost is then not tax deductible, and you cannot claim GST credits.
- $300 or more per head: If the cost of an off-site party is $300 or more per person, the entire benefit for that person becomes subject to FBT, and the expense then becomes tax deductible (including claiming GST credits).
On-site vs. off-site.
The location of your party provides two distinct tax outcomes for employees:
- On-site party (exempt property benefit): If you host the party on your business premises on a working day, the cost of food and drink provided to your current employees is generally exempt from FBT. Crucially, this exemption applies regardless of the cost per head. If you invite an employee's partner or family (associates), their portion of the cost must still be kept under $300 to qualify for the minor benefits exemption.
- Off-site party (minor benefits exemption): For parties held at a restaurant or other external venue, the Exempt Property Benefit does not apply. You must rely on the Minor Benefits Exemption by ensuring the cost remains under $300 per person for both employees and their associates to avoid FBT.
Important information about gifts.
The rules for gifts are more favourable than for parties, particularly for non-entertainment gifts.
| Gift Type | Cost Per Head | FBT Applies? | Income Tax Deduction? | GST Credits? |
|---|---|---|---|---|
| Non-entertainment (Hampers, Wine, Vouchers) | Under $300 | No (Minor Benefit Exemption) | Yes | Yes |
| Non-entertainment (Hampers, Wine, Vouchers) | $300 or More | Yes | Yes | Yes |
| Entertainment (Concert Tickets, Holiday Vouchers) | Under $300 | No (Minor Benefit Exemption) | No | No |
| Entertainment (Concert Tickets, Holiday Vouchers) | $300 or More | Yes | No | No |
For the most tax-effective outcome, you should aim to give non-entertainment gifts (like a gift card, hamper, or bottle of wine) that cost less than $300 (GST inclusive) per employee. These are FBT-exempt and fully tax deductible with GST credits claimable.
The Minor Benefits Exemption applies separately to the party and the gift. This means you can provide an off-site party under $300 per head and a non-entertainment gift under $300 per head, and both may be FBT-exempt.
For clients & suppliers.
The good news is that FBT rules generally do not apply to benefits provided to non-employees like clients and suppliers.
- Christmas parties (entertainment): The costs associated with clients or suppliers attending your Christmas party are not subject to FBT. However, the cost of entertaining clients is classified as a non-deductible entertainment expense, meaning you cannot claim an income tax deduction or GST credits for their portion of the party.
- Gifts (non-entertainment): Gifts given to clients or suppliers (e.g., wine, hampers) are not subject to FBT and are generally tax deductible with GST credits claimable, provided the gifts are for the purpose of generating goodwill or future income.
Don’t risk a law suit.
If you’re currently organising Christmas celebrations and need certainty on where FBT implications may be involved, contact the team at Ascent Accountants. We can help you navigate these rules to ensure a festive and responsible end to the year.
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