Are gifts to your employees, clients, and suppliers claimable as a business expense?
                     Are gifts to your 
employees, clients, and 
suppliers claimable as a 
business expense?
I am getting asked this question for the past 2 months 
so I decided to write a blog post about it. Christmas 
parties (or other festivities) and presents to staff might 
raise questions in your mind about how it will affect the 
tax liabilities of your business. If you would like to avoid 
any nasty surprises, read on. Here are some general 
comments about these issues:
An assumption is that the business has not elected to 
use either the ‘50-50 split’ or ‘12 week register’ 
methods for FBT purposes.
Christmas parties constitute "entertainment benefits" 
and to the extent that the expenditure relates to 
employees or their associates attending the function, 
the expenses may be subject to fringe benefits tax (FBT) 
unless an exemption (e.g. the "minor benefits" 
exemption) applies. 
A minor benefit is provided to an employee or their 
associate (e.g. spouse) on an “infrequent” or 
“irregular” basis, which is not a reward for services, and 
at a cost less than $300 (inclusive of GST) “per benefit”. 
Entertainment expenses are not tax-deductible unless 
they are subject to FBT. This means that expenses 
incurred in providing a Christmas party are not 
generally deductible where the minor benefit FBT 
exemption applies.
Scinario1. A Christmas party (or other festive occasions) 
held by your business on its premises or at a venue 
leased for this purpose does not result in any taxable 
fringe benefit to the employees. This is because it is 
provided under an arrangement where you reimburse 
the employee for costs incurred. Out-of-pocket 
expenses can be claimed as a deduction in the 
employee's income tax return. For employees – No FBT 
as it is an exempt property benefit. No tax deduction 
and no GST credits
For associates – FBT applies as the cost per head is 
equal to or more than $300. Claim tax deduction and 
GST credits
For clients – no FBT, no income tax deduction and no 
GST credits
Scinario2. Christmas parties (or other festive occasions) 
held by your business off-site requires you to make an 
apportionment between an entertainment expense and 
a private or domestic expense for  FBT purposes. If the 
FBT-exempt entertainment expense is more than 25% 
of the total cost, the whole cost will be subject to FBT 
and there will be no offsetting tax deduction or GST 
entitlement.
For employees – FBT applies as the “entertainment” 
component is greater than 25%.  No FBT as the cost is 
less than $300 per head (where the minor benefits 
exemption applies). No tax deduction and no GST 
credits.
For associates - No FBT as the cost is less than $300 per 
head (where the minor benefits exemption applies). No 
tax deduction and no GST credits
For Clients - No FBT, no income tax deduction, and no 
GST credits
Where employees are also provided with a hamper 
(non-entertainment gift) costing $150 per person - 
Hamper Costs – No FBT (where the minor benefits 
exemption applies), claiming a tax deduction and GST 
credits.
I hope this answers your question but if you are looking 
for more information or want to discuss your scenario 
in greater detail. Please feel free to reach out to one 
our experts at iKeep Bookkeeping.