Christmas Gifts to your clients and employees

Are gifts to your employees, clients and suppliers claimable as a business expense? Gifts to employees may be classified as an exempt Fringe benefit, and are therefore not claimable, nor subject to Fringe Benefits Tax (FBT).

If the gift is a minor benefit (i.e. less than $300 value), then the gift is not tax deductible, and therefore GST is not claimable for gifts to employees and their family members. No FBT applies to gifts of less than $300.

For gifts over $300, FBT may apply for employees and their family members, but FBT does not apply to clients or suppliers. You must then consider the deductibility of Entertainment rules.

Gifts to clients or suppliers such as a holiday, membership to a club, or tickets to a theatre, sporting or musical event are considered to be entertainment and are therefore not deductible.

Christmas parties held on your premises are exempt from FBT – as a minor exempt benefit – if the costs are less than $300 per head. If held outside your premises then it is also exempt from FBT. When exempt, there is no tax deduction, and there are no GST credits.

Tax Exempt entities have slightly different application of FBT to entertainment-related expenses.

Giving your clients a gift at Christmas is a personal choice that you as the business owner can make. Be aware that some clients may not be allowed to accept gifts due to their business’s Code of Conduct (e.g. government workers).

Remember - the topic of entertainment, tax deductibility and fringe benefits tax is complex and not always straight forward and may require the guidance of your tax agent.