End-of-Year Festive Season – Claims and Tax Exemptions

Australia’s tradition of celebrating the festive season culminates with end-of-year parties at commercial businesses across the nation, especially in 2022 following a hiatus. Employers keen to reward their employees with the bonhomie of a party, as well as gift-giving, with the right approach, can avoid or reduce tax obligations on the costs of parties and gifts. The Australian Taxation Office (ATO) sets out a complex tax treatment for festive season claims, including Fringe Benefits Tax (FBT). Here is a general summary for employers.

Party Time – How to apply the Minor Benefits Exemption

The rules around tax-deductible expenses when it comes to throwing a work-related party can be confusing. A staff party is classified as entertainment by the ATO. Entertainment is subject to FBT – at 47 per cent (47%) unless the Minor Benefits Exemption is used.

A minor benefit to an employee, and any associate of an employee, is exempt from FBT where it is not a reward for service, it is less than $300 (GST-inclusive) and it would be unreasonable for it to be treated as a fringe benefit. The ATO determines if a minor benefit would be unreasonable to be treated as a fringe benefit by looking at a range of criteria, including the infrequency or irregularity of a minor benefit and the practical difficulty of establishing the notional value of a minor benefit.

A seasonal weekday party held on business premises to which only staff are in attendance and at a cost of no more than $300 (GST-inclusive) per head is an example of how to throw a party that is FBT-exempt. No tax deduction or GST input tax credit may be claimed.

For seasonal weekday parties held on-site with staff, associates and/or clients, so long as the cost per head for food and drinks does not exceed $300 (GST-inclusive) per head, then these parties are also FBT-exempt. Employers might note that there is no FBT on benefits provided to clients.

Off-site seasonal parties, held on a weekday and at a venue that is not used for business, may also be FBT-exempt, so long as the cost per head is up to $300 (GST-inclusive). No tax deduction or GST input tax credit may be claimed.

Once a party’s cost per head exceeds $300, FBT at 47% is payable for employees and any associates of employees. The cost now becomes an allowable tax deduction.

Gifts Galore – What is exempt and what may be claimed?

Giving gifts to staff and clients to incite goodwill and festive cheer can be fraught with questions about tax exemptions and tax obligations on gifts.

To avoid paying FBT, firstly, a gift must not be considered entertainment, such as restaurant meals, concerts, sporting events, movie tickets and holiday accommodation but rather must be a non-entertainment gift such as gift hampers, flowers, sealed bottles of alcohol, beauty products, gift cards and store vouchers.

Second, a gift must cost less than $300 (GST-inclusive) to avoid paying FBT. A gift that meets these criteria is not only exempt from FBT, but a business may claim a tax deduction and a GST input tax credit.

If a non-entertainment gift exceeds the $300 threshold, it will incur FBT, but a tax deduction and a GST input tax credit may both be claimed. To minimise the amount of tax paid, keeping a non-entertainment gift below the $300 threshold is advisable.

Gifts to clients, irrespective of cost, do not incur FBT. No GST input tax credit or tax deduction may be claimed on an entertainment gift to a client. Therefore, to benefit from a GST input tax credit and a tax deduction, consider giving non-entertainment gifts to clients.

Are company partners and sole traders allowed to gift themselves a present?

No. Company partners and sole traders may not buy themselves a gift. These benefits are only for employees, any associates of employees and clients.

Festive Season Record-keeping – YML’s Bookkeeping is at your service

YML’s dedicated virtual bookkeepers understand Australian business, all financial processes and tax regulations, providing your business with financial information, processing, and management-level reporting at any given time of the day or night.

Make sure to keep all records related to entertainment, parties and gift benefits given to your employees and clients.

To assess your festive season costs and the tax implications of throwing your staff and clients a party and giving them gifts, contact YML’s bookkeeping service today.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with festive season tax assessments. For more information, view Our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.