You may want to show your appreciation by giving employees or clients gifts during the festive season. However, here are some FBT (Fringe Benefit Tax) and tax rules you need to follow.
Essentially, there are 2 important things to consider: what you can gift and how much you can gift.
The gold rule for gifting employees and clients is if the gifts consist of food and/or drinks, you’re only eligible for claiming 50% of expenses as part of a tax deduction. However, if your gifts consist of some foods and/or drinks but not all (e.g., gift box, gift basket), the food and drink items are 50% tax deductible and the rest of the non-food/drink items is 100% tax deductible.
Besides the nature of your gifts, you’ll also need to consider if you are gifting more than $300 (GST inclusive). In other words, if your gift to your employee is less than $300 per quarter, you may be exempt from FBT. However, if the total value of the gift exceeds $300 per quarter, then it’s subject to FBT.
In other words, as long as you don’t provide any single employee with a gift worth more than $300 each quarter (March, June, September, and December), the costs are 100% deductible. But always bear in mind, if the gift is food and/or drink, then only 50% can be claimed.
If you’re gifting vouchers, GST can’t be claimed on the purchase price. The 50% rule applies here too – if the vouchers relate to food/drink, you can only deduct 50% of the cost.
If you’re providing a staff shout, only 50% of the expenses can be claimed because food and drinks are being provided.
For gifts to clients and suppliers, the rules are exactly the same as above, except there is no set dollar value.
You don’t need to make any adjustments at your end for GST or splitting out non-deductible entertainment – your accountant will do that when the financial statements are prepared. Entertainment expenses can be tricky, we have one blog that explains this topic in more detail here.
We’ve listed some example expenses for tax deduction:
- Other gift items that are not food or drink
- Meal voucher
- A bottle of wine
- A box of chocolate