Christmas is a great time to say thank you to employees and clients with Christmas gifts and parties. But watch out for Fringe Benefits Tax (FBT). The rules are not at all straight forward, and getting it wrong can be costly. GST, Income Tax deductions and Fringe Benefits tax all must be considered.
First, determine if your gift or party is entertainment?
Entertainment is mostly a non-deductible expense. The rules are complicated, but generally, an expensive function, held after work hours with alcohol served, will most often be classed as entertainment for tax purposes.
Fringe benefits tax is very expensive and will apply to both parties and gifts that fall under the entertainment catagory. Entertainment gifts include things like Movie vouchers. For example, A Christmas gift or party costing $400 per person will attract fringe benefits tax expense of approx $370!
Gifts for employees should cost less than $300 each. Vouchers like Coles Myer or BWS vouchers, a nice hamper or bottle of wine (unopened) are exempt from FBT. Your bsusiness can claim a tax deduction and GST. But avoid Movie or restaurant vouchers as these are considered entertainment and are subject to FBT so avoid these.