Christmas Parties and Gifts: FBT and Tax for Small Businesses

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A staff Christmas party or gift can have different FBT, income-tax and GST outcomes. Spending less than $300 per person does not automatically make everything exempt or deductible. Check the benefit, recipients and valuation method before booking.

The minor-benefit exemption is conditional

A benefit must have a notional taxable value of less than $300, including GST, and satisfy the other minor-benefit conditions. Frequency, related benefits and the circumstances matter. A regular benefit does not become exempt simply because each instalment costs less than $300.

A gift and a party are considered separately for the threshold, but associated benefits still matter when assessing the exemption. See the ATO’s minor-benefits guidance. Exactly $300 is not less than $300.

Location, guests and valuation method matter

A party for current employees on business premises on a working day can qualify for the property-benefit exemption. Employee associates require separate consideration. An off-site party can produce taxable employee benefits unless an exemption applies. Client entertainment has a different treatment from employee entertainment.

These outcomes assume the relevant actual-cost treatment. An election such as the 50/50 meal-entertainment method changes which exemptions are available. The ATO employer guide’s Christmas party section explains the distinctions. Tax-exempt organisations have separate rules.

FBT exemption does not mean a tax deduction

For ordinary business entertainment, a party cost exempt from FBT generally does not qualify for an income-tax deduction or GST credit. Employee entertainment subject to FBT can have a different result. Do not record all party spending as deductible staff amenities.

Non-entertainment gifts, such as a hamper taken home, can have a different deduction outcome from theatre tickets or a restaurant outing. The ATO ruling on entertainment by way of food and drink explains the classification tests. Consider the nature and context of a gift rather than treating all gifts alike.

Keep a simple event record

• The venue, date and whether it was a working day.
• Employees, associates and clients attending, with costs allocated appropriately.
• Separate invoices for food, entertainment, transport and gifts.
• The value of each benefit and any related benefits.
• The FBT valuation method and reasons for each tax and GST classification.

Ask for a review of the proposed guest list and budget before committing. That makes it easier to compare the total cost and keep the right evidence, rather than trying to reconstruct everything when the FBT return is due.

Discuss your circumstances

Stewart Private Accounting helps business owners in Perth and across Australia with accounting and tax support. Contact our team to discuss the records, scope and fees for your work.

This guide provides general information current at the update date. The treatment depends on your circumstances and the applicable income or FBT year.