Christmas is a time for giving, but it’s also a time when many micro and small businesses need to be mindful of the tax implications of their festive generosity. This guide will help you navigate the FBT minefield and ensure you’re not giving the ATO an unwanted Christmas bonus.
1. Keeping Team Gifts Spontaneous and Meaningful
- The minor benefit threshold for FBT is $300. Anything above this level means your Christmas gifts will incur a 47% FBT penalty.
- To qualify as a minor benefit, gifts also need to be ad hoc. No monthly gym memberships or gift vouchers exceeding $300!
- Cash gifts are treated as salary and wages, triggering PAYG withholding and superannuation contributions.
- Focus on personalized gifts that resonate with your team members rather than generic options. A thoughtful message can often mean more than a generic gift.
2. Navigating the FBT Christmas Party Crunch
- Host your party in the office on a workday to avoid FBT, regardless of per-person spending. Taxi travel to and from work is also exempt.
- If your party is off-site, keep the cost below $300 per person to avoid FBT. You won’t be able to claim deductions or GST credits if there’s no FBT payable.
- If you exceed the $300 limit, you’ll pay FBT, but can claim tax deductions and GST credits. However, deductions are only useful if your business pays tax.
- Remember, the minor benefits exemption has several factors, including the total value of associated benefits throughout the year.
3. Client Lunches vs. Meaningful Gifts
- Taking clients out to lunch or entertainment is typically not tax-deductible and doesn’t allow claiming back GST.
- Sending a well-chosen gift can be a more tax-effective way to spread Christmas cheer. It’s tax-deductible as long as it’s not considered entertainment.
- Delivering the gift yourself for your best clients adds a personal touch and leaves a lasting impression.
- Focus your budget on high-value clients instead of spreading small gifts across the board.
4. Charities Love Cash
- Donations to registered charities are the safest way to ensure a full tax deduction.
- Use the Australian Business Register to find registered charities.
- Avoid buying merchandise in exchange for a donation, as this usually isn’t tax-deductible.
- Cash donations are more efficient for charities as they avoid administration costs.
5. Christmas Bonuses
- Cash bonuses are taxed similarly to salary and wages, triggering PAYG withholding and superannuation contributions.
Christmas Tax Quick Guide
This table summarizes the tax implications of various Christmas activities for GST-registered businesses not using the 50-50 split method for meal entertainment.
| Exempt from FBT? | Tax deductible | GST credits | |
| Christmas party on employer premises on a weekday | |||
| Employees | Yes | No | No |
| Associates of employee (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
| Christmas party (employer premises on a weekend or external venue) | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
| Christmas gifts (assuming the gift doesn’t involve entertainment) | |||
| Employees | If <$300 per head | Yes | Yes |
| Associates (spouses etc.) | If <$300 per head | Yes | Yes |
| Customers | N/A | Yes | Yes |
| Christmas lunch with customer at external venue | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | No | No |
Remember, this is just a guide. Always consult with a qualified tax advisor for specific advice tailored to your business situation. By planning ahead and being mindful of the tax implications, you can enjoy a festive season without any unwanted financial surprises.