Christmas is the perfect time of the year to acknowledge your employees’ and clients’ efforts by celebrating and providing gifts. Although the entertainment rules can be blurry, a lot of gifts are certainly tax deductible. The rules need to be considered on a case by case basis, as there are certain GST, tax, and fringe benefits tax (FBT) implications to think about.
Entertainment is defined as providing entertainment by the way of food, drink, or recreation and is not a deductible business expense in most cases
It is tough to get around FBT rules when providing benefits to employees such as Christmas parties. However, an example of avoiding FBT is if a Christmas party is held on the business premises, there are no FBT implications as it is an “exempt property benefit”.
If you plan to run a function for clients and referrers, there are no FBT implications for these individuals, but the costs are not income tax deductible either.
Gifts that are under the price of $300 are FBT exempt (providing they are classified as a ‘non-entertainment’ gift). Things such as professional development courses or new tools can breach this threshold of $300 and can be fully deductible. They fall under the ‘otherwise deductible’ rule of FBT, leading to them being exempt. Along with this, gift cards or vouchers under $300 are tax deductible. Anything over the $300 mark should be avoided such as memberships to clubs, tickets to events, or travel.
Another great way to reward your employees for Christmas is to pay them a bonus! This is to be processed like any other wage payment, you must withhold tax and pay superannuation. You get the tax deduction to your business and your employee will feel appreciated for their hard work.
The benefits of gift giving extends to birthdays, work anniversaries and any other work celebrations as well. When gifts are tax deductible, you have a second win as you can claim the GST back as well.
Enjoy the festive season
If you wish to find out more about entertainment and providing gifts, have a chat with Link Advisors and we can guide you on what is and isn’t tax deductible.