Tinsel & Tax: Navigating Christmas Gifting and Entertainment in Australia
The festive season is upon us, and for many small business owners, this means juggling end-of-year celebrations, client gifts, and staff presents. While it’s a time for giving, it’s also crucial to consider the tax implications of your Christmas spending.
Whether you’re planning a Christmas party or purchasing gifts, understanding how these expenses affect your bottom line is essential.
Below is a breakdown of some of the key tax considerations.
Christmas Parties: A Season of Celebration... and Tax Implications
Whether you’re attending a casual lunch, taking the team to a sporting event, going on a sunset cruise, or even organising an overnight getaway, your Christmas party is considered "entertainment" under Australian tax law. And here's the catch: entertainment expenses are generally non-deductible for tax purposes, which also means you can’t claim back GST credits on these costs. But it doesn't end there—there are also Fringe Benefits Tax (FBT) implications to be aware of.
FBT is an additional tax that can be levied at a rate of 47% on non-cash benefits provided to employees.
However, there are a couple of key exemptions that can help reduce your liability:
Food and Drinks at Business Premises: If food and drink are provided on business premises, consumed by employees only (no family members or partners), and on a working day, the property exemption applies, meaning no FBT is payable.
Minor Benefits: If the total cost of the entertainment is less than $300 per person, the minor benefits exemption applies, meaning no FBT is payable, either.
Gifts: The Season of Giving with Tax Considerations
Gift-giving is another key element of the Christmas season, but it’s important to understand how tax applies differently depending on whether the gift is for clients, suppliers, or staff.
Client & Supplier Gifts: Tax Deductions with Conditions
When it comes to gifts for clients and suppliers, they can be tax-deductible—but there are conditions. To qualify, the gift must:
Be given with the intention of fostering future business relationships or generating future income.
Not be entertainment-related (e.g., event tickets).
Not be personal (e.g., a gift for a close friend or family member).
To ensure your gift is viewed as a legitimate business expense, it’s wise to choose branded items such as custom hampers, wine, or reusable coffee cups. These not only show appreciation but also reinforce your business’s branding and the purpose behind the gift: building and maintaining professional relationships.
Staff Gifts: Tax-Friendly Options
The treatment of staff gifts depends on whether they’re considered entertainment-related or not.
Entertainment-related gifts (e.g., tickets to events, holidays, or gym memberships) are not tax-deductible and cannot have GST claimed. Additionally, if the gift exceeds $300, it may attract FBT.
Non-entertainment gifts (e.g., hampers, wine, gift vouchers, flowers, or chocolates) can be a better choice for minimising tax implications. If the value of the gift is less than $300, it will not attract FBT, and you can claim both GST and a tax deduction.
To keep things tax-efficient, we recommend non-entertainment gifts with a value under $300. This approach ensures that you can provide thoughtful gifts to your team while keeping your finances in check.