Christmas Parties & Gifts – What can I claim?

It's the time of the year again!

For business owners, this is when you’re starting to think about Christmas parties and office celebrations. It’s also the time to say thank you to your staff for another year of hard work. It’s worth knowing what you can claim and what you can’t.

Fringe Benefits Tax

At Christmas time, additional benefits are often provided to employees and clients as entertainment and gifts. Many businesses are unsure about the Fringe Benefits Tax (FBT) implications of providing these benefits. Uncertainty can lead to significant, avoidable costs.

The examples below show why businesses should understand FBT implications before providing such benefits.

Example 1: Gift cards provided by an employer

Company A and Company B each have 100 employees. Both give out gift cards at Christmas. Company A’s gift cards are valued at $250 each. Company B’s gift cards are valued at $300 each. No extra admin fees apply.

Company A
Each gift card is under $300 and given once a year, qualifying for the minor, irregular, and infrequent exemption from FBT. All gift cards are exempt from FBT.

Company B
Each gift card is $300, so it does not qualify for the exemption. FBT applies to the total value.

Cost comparison:

	Company A	Company B
Number of gift cards	100	100
Value per gift card	$250	$300
Total value	$25,000	$30,000
FBT	$0	$26,604*
Total cost	$25,000	$56,604

*FBT calculation: $30,000 x 1.8868 x 47% = $26,604 (Type 2 gross-up rate applies as gift cards are not subject to GST).

FBT nearly doubles Company B’s cost.

Example 2: Christmas Party

Company A and B both hold annual Christmas parties off business premises, managed by an external provider. Transport from the office to the venue is provided. Each party is attended by 100 employees.

Company A
Breakdown of costs:

Food and drinks	$20,000
Entertainment	$5,000
Transport	$2,000
Management fee	$4,000
Total	$31,000

Company B
Total invoice without breakdown: $31,000 (incl. GST).

Company A
For FBT, include only employee benefits (food, drinks, entertainment, transport). The management fee is not an employee benefit. Per head: ($20,000 + $5,000 + $2,000) / 100 = $270.

Under $300 and provided once a year, it qualifies for the minor, infrequent, and irregular exemption. No FBT applies.

Company B
No breakdown means the full $31,000 counts. Per head: $31,000 / 100 = $310, exceeding $300. No minor benefit exemption. Full amount is subject to FBT.

Cost comparison:

	Company A	Company B
Costs subject to FBT	$27,000 (Food/Drinks/Entertainment/Transport)	$31,000
Number of employees	100	100
Cost per person	$270	$310
FBT	$0	$30,309**
Total cost	$31,000	$61,309***

**FBT calculation: $31,000 x 2.0802 x 47% = $30,309 (Type 1 gross-up rate as costs include GST).
***Assumes Actual Method for meal entertainment. Other methods (50/50 Split) might reduce taxable value depending on total annual spend.

Again, FBT almost doubles the cost for Company B, showing the importance of understanding FBT rules. With proper planning, costs can be lowered by using exemptions.

Below is a summary of FBT, GST Input Tax Credits (GST ITC), and income tax deductibility implications for gifts and functions.

Giving gifts to clients and employees

Tax treatment summary:

Recipient	Gifts – Non-Entertainment (e.g. hamper, wine)	Gifts – Entertainment* (e.g. movie tickets, restaurant voucher)
Client	No FBT, Deductible, GST ITC available	No FBT, Not deductible, No GST ITC
Employee or Associate < $300 (GST incl)	No FBT, Deductible, GST ITC available	No FBT, Not deductible, No GST ITC
Employee or Associate ≥ $300 (GST incl)	FBT applies, Deductible, GST ITC available	FBT applies, Deductible, GST ITC available

*Assumes not meal entertainment or that Actual Method applies if it is meal entertainment. Different methods (50/50 split, register) have different requirements.

Christmas parties/year-end functions

The correct tax treatment depends on FBT status, chosen valuation method (50/50 split, actual, register), and who receives the benefits (employees, associates, or clients).

Entertainment costs are only deductible and GST ITC available if subject to FBT. If exempt, then no deduction or GST ITC applies.

Under $300 per head (on or off premises):
- Actual Method: Minor Benefit exemption for employees/associates. No FBT, not deductible, no GST ITC.
- 50/50 Split: 50% subject to FBT and deductible, GST ITC available.
- Register Method: Register percentage subject to FBT is deductible, GST ITC available.
- Clients: No FBT, not deductible, no GST ITC.

Over $300 per head (on business premises, employees only):
- Actual Method: Exempt benefit for employees, no FBT, not deductible, no GST ITC.
- 50/50 Split or Register: Include all costs; portion subject to FBT is deductible with GST ITC available. Associate costs generally subject to FBT.

Over $300 per head (off business premises, employees and associates):
- Actual Method: Employees and associates subject to FBT, deductible, GST ITC available.
- 50/50 Split: 50% FBT, deductible, GST ITC available.
- Register Method: Percentage subject to FBT is deductible, GST ITC available.
- Clients: No FBT, not deductible, no GST ITC.

*If using meal entertainment methods (50/50 split, register), costs are allocated per those rules. Minor benefit rule is limited for income tax exempt businesses.

Tax treatment for income tax exempt employers

If the Actual Method is used by income tax exempt employers, FBT generally applies to employee and associate costs regardless of amount or location. Client entertainment remains exempt. Under the 50/50 split or register methods, treatment is similar to income tax paying employers.

RJS recommendations

• Review the entertainment benefits you provide. Consider if alternative approaches achieve a better FBT outcome.
• Communicate internally (HR, finance) before offering fringe benefits.
• Understand FBT implications and keep proper records.
• If in doubt, seek advice from your employment taxes team before providing benefits.

Published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This content is general and not personal advice. No individual circumstances were considered. Seek professional advice before making financial or business decisions.