Christmas Parties and Gifts – Understanding the FBT, Tax and GST Rules

Christmas Parties and Gifts – Understanding the FBT, Tax and GST Rules

Sarah runs a small marketing agency with eight staff. It’s nearly December, and she’s planning her team Christmas party at a local restaurant and wants to give each employee a gift hamper. She knows there are tax implications, but she’s confused about what applies and when.

Sound familiar?

With the festive season approaching, it’s important to understand the tax implications of providing your employees with Christmas parties and gifts. The good news is that once you understand one key number and a simple distinction, the rules become much clearer.

$300 – An Important Number

The most important number to remember is $300 (including GST).

This is the threshold that determines whether Fringe Benefits Tax (FBT) applies to benefits you provide to your employees. Benefits valued at less than $300 per person are exempt from FBT, as long as they’re ‘minor and infrequent’. Christmas gifts and parties typically meet this test.

Once you spend $300 or more per person, FBT applies to the full amount.

Entertainment vs Non-Entertainment Gifts

The second thing you need to understand is whether what you’re providing is classified as ‘entertainment’ or a ‘non-entertainment gift’. This matters because they have different tax treatment.

Entertainment includes:

• Christmas parties (meals, drinks, venue hire)
• Theatre or sporting event tickets
• Restaurant or accommodation vouchers

Non-entertainment gifts include:

• Gift hampers
• Flowers or wine
• Perfume or gift sets
• Non-entertainment gift vouchers (such as retail store vouchers)

Why This Distinction Matters

Entertainment provided to employees is not tax deductible for your business unless FBT applies.

Non-entertainment gifts are tax deductible whether or not FBT applies.

Common Christmas Scenarios

Scenario 1: Christmas party costing $250 per person
FBT: No (under $300) | Tax deduction: No (it’s entertainment) | GST credit: No

Scenario 2: Christmas party costing $400 per person
FBT: Yes ($400 or more) | Tax deduction: Yes (because FBT applies) | GST credit: Yes

Scenario 3: Gift hamper costing $150 per person
FBT: No (under $300) | Tax deduction: Yes (non-entertainment gift) | GST credit: Yes

Scenario 4: Gift hamper costing $350 per person
FBT: Yes ($300 or more) | Tax deduction: Yes (non-entertainment gift) | GST credit: Yes

Quick Reference Guide

Use this table to quickly determine what applies to your Christmas spending for staff:

Important Notes

Minor and infrequent: For the FBT exemption to apply to benefits under $300, they must be considered ‘minor and infrequent’. Christmas gifts and parties generally meet this requirement as they typically occur once per year.

50/50 split method: This assumes your business is not using the 50/50 split method for entertainment expenses. If you are using this method, different rules apply.

Associates: If you’re inviting employee partners or family members to your Christmas party, special rules may apply. Download our full summary table for more information.

Planning Tips

• Stay under $300 per person for entertainment if you wish to avoid FBT (remembering this includes GST in the calculation)
• Non-entertainment gifts are always deductible, regardless of the $300 threshold
• Keep good records of all Christmas expenses, including who attended and what was provided
• Calculate costs per person by dividing total costs by the number of employees (don’t forget to include yourself if you’re attending)

Understanding these rules helps you plan your Christmas celebrations while managing your tax position effectively. You can be generous to your team while making informed decisions about the tax implications.

DOWNLOAD OUR FULL SUMMARY TABLE – TAX CONSEQUENCES OF GIFTS & ENTERTAINMENT

The above is only a high-level summary of some complex tax rules regarding Christmas parties and gifts. Individual circumstances may vary. If you have any questions or would like more specific information on the above, please contact us.

Disclaimer

The information provided in this article does not constitute advice.  The information is of a general nature only and does not take into account your individual situation.  It should not be used, relied upon, or treated as a substitute for specific professional advice.  We recommend that you contact Brentnalls WA on (08) 6212 7200 before making any decision to discuss your particular requirements or circumstances.