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With the festive season approaching (or already underway), many business owners are preparing for year-end celebrations with their employees and clients. Understanding the rules around Fringe Benefits Tax (FBT), GST credits, and tax deductibility can help avoid unexpected surprises at tax time.

Holiday celebrations typically involve Christmas parties and/or gift giving.

Christmas Parties

Gifts

It’s essential to determine whether the gift is classified as "entertainment" (e.g., movie or theatre tickets, sporting event admissions, holiday travel, or accommodation vouchers).

Best Approach for Employees

Treating employees to a Christmas lunch or dinner can avoid FBT if the cost per person stays under $300 and the event is infrequent. While the cost isn’t tax-deductible, this approach avoids the higher cash-flow impact of grossed-up FBT.

Pairing an off-site Christmas party with non-entertainment gifts (e.g., up to $299) is a cost-effective way to show appreciation. Gift cards are particularly well-received and, even if they can be used for entertainment purchases, are not considered entertainment gifts. This means they are tax-deductible, and GST credits can be claimed.

Best Approach for Clients

FBT does not apply to gifts for clients, but non-entertainment gifts (e.g., hampers, wine, or branded merchandise) are more tax-effective than hosting a lunch or dinner, as these gifts are tax-deductible, and GST credits can be claimed. Thoughtful gifts often leave a stronger impression than dining out during a client’s already busy festive schedule.

For advice on tax treatment for holiday celebrations and gift giving, feel free to contact us.