Tax Tip Tuesday: Christmas Gifts, Parties & The Minor Benefit Exemption

Gifts which ARE NOT consider to be entertainment

These generally included, for example

  • Christmas hamper, a bottle of whisky, wine, etc. and
  • gift vouchers, a bottle of perfume, flowers, a pen set, etc

The general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and family members – FBT is payable (except where the minor benefit exemption applies) and a tax deduction is allowed
  • gifts to clients, suppliers, etc. – no FBT, and a tax deduction is allowed.

Gifts which ARE consider to be entertainment

These generally include, for example:

  • tickets to attend a theatre, live play, sporting event, movie or the like; and
  • a holiday airline ticket or admission ticket to an amusement centre.

The general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and family members – FBT is payable and a tax deduction is allowed (except where the minor benefit exemption applies).
  • gifts to clients, suppliers, etc. – no FBT and no tax deduction.

The Minor Benefit Exemption

Where the value of a Christmas related benefit (e.g. food and drink, and a gift) provided to an employee or family member is less than $300, it will be exempt from FBT.

For the purposes of the $300 minor benefit threshold, the following tips should be considered:

  • the $300 threshold is applied separately to each benefit provided to an employee, and/or each benefit provided to a family member (e.g. spouse)
  • all benefits provided to an employee or a family member in relation to a Christmas function are no longer grouped when applying the $300 threshold (i.e. the $300 threshold is applied separately to each benefit).

Example

An employer holds an external Christmas party for employees and their spouses.

The cost of food and drink per person is $250, and no other benefits are provided.

Assuming the actual method is adopted:

  • for employees attending with their spouse – no FBT is payable (i.e. the per head cost is less than $300); and
  • for employees attending alone – no FBT is payable (i.e. the per head cost is less than $300).In either case, no tax deductions will be allowed Assuming the 50/50 method is adopted:
  • 50% of the total expenditure is subject to FBT and is tax deductible.

Gift vouchers

What if employees with spouses are given a gift voucher (for their spouse) to the value of $150 (assuming this benefit is infrequent and irregular, etc.)?

Under the actual method for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the voucher) is less than $300 (i.e. the benefits are not aggregated).

No deduction is allowed for the food and drink, but the voucher is deductible.

Assuming the 50/50 method is adopted:

  • 50% of the total cost of food and drink is subject to FBT and deductible; and
  • the total cost of all gift vouchers is not subject to FBT because the cost is less than $300. As the vouchers are not entertainment, the cost is deductible.

Taxi Travel to and from the Christmas party is also considered part of the cost.

If the minor benefit is used not deductible. If above $300 then FBT would be payable etc.