Festive Gift Giving Without The Tax Tangle

As the year wraps up, many business owners want to thank their employees and clients for their support. Before you start wrapping gifts or planning a celebration, it’s worth understanding the tax rules that apply especially when it comes to fringe benefits tax (FBT) and deductions.

Gifts for Employees

You can absolutely give gifts to employees but the tax treatment depends on the type and value of the gift.

• Non-entertainment gifts under $300 (including GST) are the most tax-effective. Gifts such as hampers, flowers, wine, skincare products, perfumes or gift vouchers are fully tax deductible and are exempt from FBT. You can also claim a GST credit.
• Non-entertainment gifts over $300 – once the value reaches $300 or more, FBT applies at 47% of the grossed-up value. The business can still claim a tax deduction and GST credit but the benefit becomes less attractive.

Gifts for Clients and Suppliers

Client gifts aren’t subject to FBT because they aren’t employees. If you give non-entertainment gifts that are reasonable in value, such as a hamper or bottle of wine, you can usually claim both a tax deduction and a GST credit.

The Minor Benefits Exemption

The minor benefits exemption allows a person to avoid paying FBT where the benefit given meets certain criteria. A minor benefit is one that:

• is provided to staff or their associates, for example their spouse or partner
• is provided on an “infrequent” or “irregular” basis
• is not considered a reward for services
• costs less than $300 “per benefit” inclusive of GST

It’s a simple way to stay on the right side of the tax rules when giving modest, occasional gifts.

Use Entertainment Gifts with Caution

Entertainment gifts are treated differently for tax purposes. These include tickets to concerts, movies, theatre or sporting events or gifts such as holidays.

• If the cost of an entertainment gift for a staff member or their associate is less than $300 inclusive of GST, FBT is not payable however, you cannot claim a tax deduction or GST credit.
• If the cost of an entertainment gift for a staff member and their associate is more than $300 GST inclusive, a tax deduction and GST credit can still be claimed, however FBT is payable at the rate of 47 percent on the grossed-up value.

For clients, the cost of any entertainment gifts provided is not subject to FBT and no tax deduction or GST credit can be claimed.

Christmas Parties

If you host a staff Christmas party, the cost is considered entertainment and it is not tax deductible plus FBT may apply if the cost per person (including associates) exceeds $300.

Reporting Requirements

If the total taxable value of fringe benefits for an employee exceeds $2,000 in an FBT year, you must report it on their payment summary or income statement. Most accounting systems, such as Xero, make this process straightforward.

The Bottom Line

For the best tax outcome, stick with non-entertainment gifts under $300 per person. They’re fully deductible, exempt from FBT and a simple way to spread festive cheer while staying compliant.