As we near Christmas, we receive many questions from businesses regarding the implications of Christmas Parties, Gifts and Donations.

Firstly, it’s important to understand Fringe Benefits Tax (FBT) and how this may be applicable during the festive season.

What is Fringe Benefits Tax (FBT)

A fringe benefit is something extra you get from your employer, in addition to your wage or salary or in return for foregoing some of your salary under a salary sacrifice arrangement.

Fringe benefits tax (FBT) is a tax paid by employers on certain benefits provided to their employees, or to their employees’ family or other associates.

FBT is separate to income tax. It’s calculated on the taxable value of the fringe benefit and it is the employer who is liable for the tax, not the individual. You can read more on this here.

Christmas Parties

Christmas parties, or staff parties, are a great time to celebrate and reward staff for their hard work throughout the year. It is however important to remember the Fringe Benefits Tax (FBT) implications for non-FBT exempt organisations.

Some useful rules to remember include:

1. Entertainment is generally non-deductible for income tax purposes unless FBT is paid
2. No GST credits can be claimed on non-deductible entertainment
3. Morning teas, milk, biscuits and other light refreshments (not including alcohol) for employees and clients are generally not considered entertainment and are thus not subject to FBT, but are income tax deductible and GST claimable
4. If a business is holding a social activity/function on premises such as Friday night drinks or a Christmas party, the FBT, income tax and GST implications are as follows:

For employees:

For clients, contractors, suppliers:

5. If a business is holding a social activity/function off premises (i.e. a restaurant)such as a Christmas party or awards night, the FBT, income tax and GST implications are as follows:

For employees:

For clients, contractors, suppliers:

Gifts

Many businesses consider gifts for their employees, or customers. Some important points to consider are the gift value, and nature of the gift. We have outlined the key considerations below.

A minor fringe benefit is exempt from FBT where it is both:

1. Less than $300 in value (exc: GST) per head and
2. is infrequently provided and/or difficult to record and value

Whilst minor fringe benefits are exempt from FBT, they can’t be claimed as a income tax deduction and GST is not claimable on them;

1. Employee gifts no matter their nature are subject to fringe benefits tax. Client gifts are not subject to FBT, however not all client gifts are income tax deductible and GST claimable.
2. Examples of client gifts that are income tax and GST deductible include:
   1. Bottles of wine;
   2. Christmas Hampers;
   3. Perfume;
   4. Flowers;
   5. Pen Set;
3. Examples of client gifts that aren’t income tax and GST deductible include items of a recreational nature, such as tickets to a theatre or sporting event.

Donations

Many people believe that Christmas is a time for giving and make generous donations during this period.  

While the spirit of giving is commendable, for tax purposes, you can only claim a tax deduction for gifts or donations made to organisations that are registered as deductible gift recipients (DGRs).

In order to be able to claim a tax deduction for a gift/donation, it must meet these conditions:

1. The gift must be made to a deductible gift recipient (DGR)
2. The gift must truly be a gift. A gift is a voluntary transfer of money or property where you receive nothing in return
3. The gift must be money or property, which includes financial assets such as shares.

Note: when you make a donation you should receive a receipt from the charity that states whether or not this donation is tax deductible. You can also check the DGR status of a charity on the abnlookup website or on the ACNC website.

In contrast, you can’t claim a tax deduction for a gift or donation that provides you with any kind of personal benefit, such as:

1. Raffle tickets
2. The cost of attending fundraising events, even if the cost exceeds the value of the dinner

At Hall Chadwick QLD, we believe that Christmas is a season to celebrate and enjoy. As such we encourage all businesses to please contact their Hall Chadwick QLD advisor should they require any assistance in understanding the taxation implications above.

Hall Chadwick QLD is not a financial advisor. This article should not be taken as financial or investment advice and is general in nature. You should consider seeking independent financial and legal advice to see how the information provided relates to your unique circumstances.