The holiday season is upon us, and business owners are contemplating ways to express gratitude to their hardworking employees. One common inquiry during this period revolves around tax-effective gift options for both the company and its staff.

While the office Christmas party is a popular choice, it’s important to note that its cost falls under Entertainment expenditure and is generally not tax-deductible for the business, unless the expense exceeds $300 per person. In such cases, Fringe Benefits Tax (FBT) is also applicable at a rate of 47% on the grossed-up value of the benefit. Business owners should carefully consider these implications when planning festive celebrations for their employees.

A tax-effective way to thank your employees is by giving them a non-entertainment gift valued at UNDER $300, including GST.

Gifts like alcohol, vouchers, hampers, perfumes, pen sets, etc., are fully tax-deductible, and no Fringe Benefits Tax (FBT) is required if the gift is under $300. This limit applies individually to gifts for associates, such as spouses.

It’s also worth considering, that providing “entertainment” gifts (e.g., theater tickets, movie passes, sporting event tickets) is less tax-effective. For such gifts under $300, FBT is not applicable, but you also won’t receive a tax deduction or the ability to claim a GST credit.

Rules differ for gifts to clients or suppliers. Entertainment gifts for clients have no FBT, regardless of value, but no deduction or GST credit can be claimed. Non-entertainment gifts for clients are never subject to FBT, and you’re eligible for a tax deduction and GST credit.

Below you can find a summary of the FBT and Tax consequences. The Orange text highlights the most tax effective gifts.

Gifts to Employee’s

Gifts to Clients, Contractors, Suppliers

If you would like to discuss strategies for reducing any Tax and FBT obligations further, please don’t hesitate to contact our office.