As the festive season rolls around, it’s time to think about Christmas parties and gifts for your team and clients—and, of course, make sure you’re handling everything in a tax-smart way. At MBC Group Services, we know tax planning isn’t the most exciting part of holiday prep, but getting it right can help avoid surprises when the season’s cheer fades.
Lets break down the essentials so you can focus on celebrating, knowing your FBT and tax matters are covered.
FBT on Christmas Parties
- FBT-exempt small business threshold: If your business is classified as a small business (with an annual turnover of less than $10 million), Christmas parties held on business premises may be exempt from FBT for employees and their associates (e.g., family members).
- Minor benefits exemption: If the cost of the party is under $300 GST inclusive per person (including food, drink, and entertainment), it may be exempt from FBT under the minor benefits exemption. This applies if the party is not held on the business premises.
- Location and attendee considerations:
- If the party is held offsite (e.g., at a restaurant), FBT may apply if the cost per employee or associate exceeds $300 GST inclusive.
- If the party is held onsite at the business premises, FBT is generally exempt for employees and associates of employees.
- Clients vs. Employees: Entertainment provided to clients is not subject to FBT. However, businesses cannot claim a tax deduction or GST credit for expenses related to entertaining clients.
- Short summary: If FBT does not apply to the costs, then no income tax deduction or GST credits can be claimed on those costs.
Tax Deductibility of Christmas Party Expenses
- Expenses incurred for employees at Christmas parties may be deductible if they attract FBT. However, if the minor benefits exemption applies, these expenses are typically not tax-deductible.
- Expenses related to entertaining clients are not tax-deductible or eligible for GST credits.
- If you provide gifts in addition to the party, the costs must be assessed separately for FBT and income tax deductibility purposes.
Gifts for Employees
- FBT Implications: Gifts under $300 GST inclusive per employee can generally be considered a minor benefit and may be exempt from FBT. To qualify, gifts must be infrequent and irregular, so year-end gifts often meet this criterion.
- Types of Gifts and FBT:
- Non-entertainment gifts (e.g., gift cards, hampers, wine): Typically qualify for the minor benefits exemption and are tax-deductible.
- Entertainment gifts (e.g., tickets to events or experiences): These may be subject to FBT and are generally not deductible.
- Tax Deductibility: Non-entertainment gifts exempt from FBT are typically deductible, while entertainment gifts are generally not.
Gifts for Clients
- Gifts given to clients, unlike entertainment, are generally tax-deductible, provided they are not entertainment in nature.
- Type of Gift Matters: Non-entertainment gifts (e.g., branded merchandise, wine, or food hampers) are tax-deductible, whereas entertainment gifts (e.g., event tickets or holiday packages) are not.
- No FBT: FBT does not apply to gifts provided to clients.
Record Keeping and Documentation
- Accurate records are essential to substantiate FBT exemptions, especially for expenses under the minor benefits rule.
- Detailed records of event costs, attendee lists, and the nature of each expense (e.g., food, drink, venue hire) will aid in assessing FBT and tax deductibility.
- Documenting the purpose of gifts (e.g., to staff, associates, or clients) helps in separating expenses that qualify for income tax deductions from those that do not.
Summary of FBT application/income tax deductibility based on the actual method calculation basis. Please be aware that different FBT calculation methods will produce different results and you should discuss the varying applications further with your accountant.
| Item | FBT Applicability | Income Tax Deductibility |
| Christmas Party – Onsite (Employees/Associates) | Exempt if on business premises | NOT deductible |
| Christmas Party – Offsite (Employees/Associates) | Exempt if <$300 per employee | NOT deductible |
| FBT exempt if >$300 per employee
FBT applies if >$300 per employee associate |
NOT deductible
Deductible |
|
| Christmas Party (Clients) | No FBT | NOT deductible |
| Non-entertainment Gifts (Employees) | Exempt if <$300 GST per employee | Deductible |
| FBT applies if >$300 | Deductible | |
| Entertainment Gifts (Employees) | Exempt if <$300 GST per employee | Not deductible |
| FBT applies if >$300 | May be Deductible | |
| Non-entertainment Gifts (Clients) | No FBT | May be Deductible |
| Entertainment Gifts (Clients) | No FBT | Not deductible |
Remember, a little planning now can go a long way toward keeping things simple and tax-effective for the holiday season. If you have questions or want help navigating the specifics for your Christmas party or gifts, reach out to MBC Group! We’re here to ensure your end-of-year celebrations are enjoyable, compliant, and stress-free. Give us a call, and let’s keep the festive spirit—without any tax hangovers!
