As the festive season approaches, many businesses are planning ways to reward their teams with end-of-year celebrations and gifts.

While these gestures of appreciation boost morale and strengthen workplace relationships, they often come with tax implications, specifically in the form of Fringe Benefits Tax (FBT). Understanding FBT and planning carefully can ensure your generosity doesn’t unintentionally lead to a hefty tax bill.

What is Fringe Benefits Tax (FBT)?

FBT is a tax on non-cash benefits provided by employers to employees. This includes perks like Christmas gifts, festive meals, and holiday parties. At 47% for most taxable fringe benefits, FBT can significantly impact your business’s finances if not managed wisely.

Christmas perks and FBT

Common Christmas-related benefits often subject to FBT include:

  • Staff Christmas parties
  • Holiday gifts, such as gift cards
  • Festive meals provided during events

While these benefits foster goodwill and celebrate achievements, understanding how FBT applies to each can help you minimise tax obligations.

The Minor Benefits exemption

Christmas parties are categorised as “entertainment benefits,” meaning they may attract FBT. However, the minor benefits exemption can apply if:

  • The benefit is infrequent or irregular,
  • It is not a reward for services, and
  • The cost is less than $300 (inclusive of GST) per benefit.

For instance:

  • Party Costs: Expenses for a Christmas party provided to employees may be exempt if they fall under the minor benefits threshold. However, these expenses will generally not be tax-deductible where the minor benefit exemption applies.
  • Non-entertainment Benefits: Gifts like hampers or gift vouchers are assessed separately when applying for the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.
Choosing tax-efficient gifts

Non-entertainment gifts are the most tax-efficient option:

  • Tax Deductible: Gifts under $300 per employee are fully deductible.
  • No FBT Payable: The minor benefits exemption applies.
  • GST Credits Can Be Claimed: If the gift costs less than $300.

Entertainment-related gifts, such as tickets to concerts or sporting events, are less favourable from a tax perspective:

  • Non-Deductible: Entertainment gifts are generally non-deductible, and GST credits cannot be claimed unless FBT applies.
  • Minor Exemption: While the minor benefits exemption can apply to these gifts, tax deductions and GST credits can only be claimed if FBT is paid.
Key takeaways for the holiday season

To maximize tax efficiency this festive season:

  1. Plan Ahead: Budget for gifts and parties with FBT implications in mind.
  2. Choose Wisely: opt for non-entertainment gifts under $300 to maximise deductions and exemptions.
  3. Maintain Records: Keep detailed records of expenses to streamline tax reporting and compliance.
Maximise your FBT strategy with our expert guidance

Navigating FBT rules can be complex, but with the right strategy, you can reward your employees without breaking the bank. Contact our team of specialists today to plan your festive season benefits and ensure you’re making the most of available exemptions and deductions.