Christmas is fast approaching with only 6 Sundays until Christmas!  Gift giving and Christmas parties are well underway and it is a good time to be aware of the most tax advantageous ways to be generous to staff and clients. 

The best gifts tax wise are ‘non-entertainment’ gifts such as wine, chocolate, hampers, skin care products, massage vouchers etc as these gifts are tax deductible and you can claim back the GST with no limits on value when given to clients.  If given to staff the gift value is limited to $300 including GST per employee to be tax deductible and for GST to be claimed back.  If gifts to staff are over $300 per employee, FBT (fringe benefits tax) rules apply.   

Gifts to staff and clients, in the form of entertainment such as concert tickets, restaurant vouchers, Christmas parties etc are not as tax advantageous as they aren’t tax deductible.  GST cannot be claimed back at all for clients and for staff only if FBT is paid. 

Where a Christmas party is hosted for current staff during work hours on your business’ premises the party is exempt from FBT.  Otherwise if the party is held off site or after work hours the value of the party per employee must remain under $300 to avoid FBT. 

In summary: 

• Gifts to clients – YES if not entertainment you can claim a tax deduction and claim back the GST. 
• Gifts to staff – YES are tax deductible and can claim back the GST, if not entertainment and if the gift is under $300 and is provided infrequently and irregularly then it falls under the minor exemption benefit and FBT is avoided.   

• Christmas parties for clients are NOT tax deductible and GST cannot be claimed. 
• Christmas parties for staff are also NOT tax deductible and you cannot claim back the GST unless FBT is paid.  FBT is avoided if the benefit provided to each employee is less than $300 and is provided infrequently and irregularly or the party is held on the business’ premises during work hours. 

Despite the tax treatment many businesses still prefer to celebrate the year with a Christmas party for staff and clients as it is good for morale, shows appreciation for their support and builds stronger relationships for the forthcoming year.  We think a fun party celebrating in style is always a good idea despite the tax consequences!