'Tis the season, and for many businesses they consider this period an appropriate time to celebrate and thank staff for their contributions over the past year. However, the last thing that they may consider is Fringe Benefits Tax (FBT).

If you are planning on providing Christmas functions or gifts to your staff, it is important that you are aware of the associated FBT implications when it comes to the following: 

1. How much to spend?
2. Who do you invite?
3. Where do we celebrate?
4. Gift giving?

1. How much to spend?

At this time of the year, they say everything in moderation and the same applies from an FBT point of view. Put simply, if the cost of the Christmas party or gift is less than $300 (including GST) per head it will be considered a 'minor benefit' and exempt from FBT. This exemption is only available on the assumption that these benefits are not being provided on a regular basis.

2. Who do you invite?

If you are feeling generous and decide to invite the employee's respective partners to a Christmas event, the minor benefits exemption could apply to both the employee and their partner (considered their associate).

As discussed previously, this is because the 'minor benefits' threshold of $300 is on a per head basis and not a per employee basis.

3. Where do we celebrate?

Whilst not always considered the most appropriate setting for a Christmas party, the best venue to hold your end-of-year function from an FBT perspective is at your workplace and on a working day.

This is because FBT is unlikely to apply regardless of how much you spend per person (for employees only). Furthermore, if you pay for your employee's taxi ride home from a party at your business premises, this is also considered an FBT exempt benefit. However, you are unable to claim an income tax deduction or a GST credit in relation to these expenses. You should also note that FBT may still be applicable to invited associates if the party is held on the business premises and the cost per head is $300 or more.

4. Gift giving?

If you want to reward your staff for their efforts throughout the year, giving a Christmas present is a wonderful way of providing a token of your appreciation.

The tax treatment of Christmas gifts depends as to whether they are classified as 'entertainment' or 'non-entertainment.'

What's the difference between the two?

Entertainment gifts include movie or concert tickets, a holiday airline ticket etc. Whereas, non-entertainment gifts include things like Christmas hampers, gift vouchers and a bottle of wine.

If you give your employees an entertainment gift that costs less than $300 (including GST), no FBT liability will be payable, but you are unable to claim a tax deduction or a GST credit.

That is opposed to providing a non-entertainment gift that costs less than $300 (including GST). In this circumstance, FBT will also not apply, but you are able to claim a tax deduction and a GST credit in relation to these gifts.

If you would like to give your clients/customers a non-entertainment gift, these items do not fall within the FBT rules as they are not being provided to employees. A tax deduction and a GST credit may also be claimed provided that the value is within reason. 

How can we help?

Clearly, the FBT rules can be complex, which has been highlighted above. If you have any questions regarding the provision of Christmas parties/gifts to your staff this festive season, or you have any concerns in relation to other employee benefits being provided, please contact your Johnsons MME advisor.