Understanding FBT & tax: gifting to employees and clients

You may want to show your appreciation by giving employees or clients gifts during the festive season. However, there are some Fringe Benefit Tax (FBT) and tax deductibility 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 to 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/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 are 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 need to file an FBT return, make sure to check these key dates for quaterly FBT.​

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 can adjust these items to 50% deductible when you reconcile your transactions. Don't panic if you forget – your accountant will correct this for you when the financial statements are prepared.​​

Read more: A guide to entertainment expenses ​

100% tax deductible ​

50% tax deductible​

If you’re an employee (or a shareholder-employee) receiving PAYE-paid wages from the business, you can. Otherwise, no.​​

This is set by Inland Revenue. Anything more than $300 (GST inclusive) per quarter is captured by the FBT regime.​

Gifting over $300 is not tax-effective although you still can claim GST on the gift, but the value of the gift will be subjected to fringe benefit tax. ​

We’ve compiled a list of business expenses you can deduct, download this checklist and minimise your taxes in just under 5 minutes! ​

Need a helping hand? At Beany, we specialise in making accounting and tax a breeze. Our team of experts can handle your tax compliance so you can focus on what you do best – running your business. Let Beany be your trusted accounting partner. Get in touch with us today.​