The festive season is a time to show appreciation to employees and celebrate the year’s successes, but it’s also important to keep an eye on the tax implications of those celebrations. From gifts and bonuses to holiday parties and perks, understanding how Fringe Benefit Tax (FBT) applies can save your business from unexpected costs.

A Christmas party is generally staff entertainment and a part of the ordinary cost of doing business. In most cases, only 50% of these expenses will be tax-deductible under the entertainment rules. This might include food and drinks provided to staff, and other incidental costs of entertainment like hiring the venue, and music.

A gift, on the other hand, will usually be considered a fringe benefit for an employee if it is received in connection with their employment. The gift may also be fully deductible to the employer, depending on whether it meets the general criteria for deductibility.

A gift is an unclassified benefit under the FBT rules. An employer may need to pay FBT on the value of the gift. However, a Christmas gift might be exempt from FBT if its value does not exceed the ‘de minimis’ threshold.

If you are a quarterly FBT filer, total unclassified benefits must not exceed:

  • $300 per employee per quarter, and
  • $22,500 for all employees in the last 4 quarters (including the current quarter)

If you are an annual FBT filer, total unclassified benefits must not exceed:

  • $1,200 per employee per year, and
  • $22,500 for all employees in the last income year

By staying within exemptions, keeping accurate records, and balancing expenses, you can spread the holiday spirit without unexpected tax surprises.

As always, if you have any questions about FBT or entertainment expenses, please reach out to one of the team.