Christmas gift-giving and the FBT

Once again Christmas is just around the corner and the gift of giving is a normal practice for businesses, consumers, suppliers & clients alike.

However, Fringe Benefits Tax (FBT) is always a tricky subject and if not understood and addressed before you spend that money it could leave you a large hole in your pocket from the FBT payable.

Below is a quick summary, showing you what you will and won’t pay FBT on. Please seek advice from your accountant now or contact us to discuss your FBT to avoid making a mistake.

Gifts which ARE NOT considered to be entertainment

These generally include, for example:

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

Briefly, 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 less than $300 minor benefit exemption applies) and a tax deduction is allowed; and
  • gifts to clients, suppliers, etc. – no FBT, and a tax deduction is allowed.

Gifts which ARE considered 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.

Briefly, 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); and
  • gifts to clients, suppliers, etc. – no FBT and no tax deduction.

Non-entertainment gifts at functions

What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150?

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

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

Where 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 gifts are not subject to FBT because the individual cost of each gift is less than $300.

As the gifts are not entertainment, the cost is deductible.

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