‘Tis the season to be merry and start planning your office Christmas party. Will the Tax Man score an invite? Will the FBT Grinch steal your Christmas Party cheer?
It’s that time again when negotiations start about the most important activity for business. Not forecasting, final results or future contracts. Rather, where to have this year’s Christmas Party? For most organisations, however, the lavish parties and restaurant meals of holiday seasons past are now but a fond memory due to the modern day Grinch of Christmas – Fringe Benefits Tax (FBT).
But there is no tax on Christmas Parties, right?
Although it’s hardly something that brings on a bout of seasonal good cheer, it’s important to understand the tax rules if you intend to hold a work Christmas party.
FBT applies wherever an employer provides a benefit to an employee other than their regular salary or wage, with employers required to pay FBT at a rate of 47% on the grossed up taxable value of these benefits. Unfortunately, the Australian Taxation Office (ATO) deems Christmas parties to be an ‘entertainment benefit’ because food and drink are provided in a social situation and the aim is for employees to enjoy themselves.
What if we just keep cost per head under $300?
The ATO states:
If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.
Exempt property benefits
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefit exemption is only available for employees, not associates.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
Please also note, employers can only claim input tax credits for the GST paid on the component of the entertainment that is subject to FBT. This situation only occurs when the cost is more than $300 per person and the party is held off site from the business premises.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
So, in a nut shell –
How can I stop the Commissioner from taxing my Christmas Party?
Don’t have one. Or have it on site during business hours with no alcohol. Or instead of giving the employees a party, give them a gift less than $300 that is not entertainment. Or just accept that the Commissioner will enjoy another year of Christmas party tax presents, and realise that thinking about tax makes Christmas parties much less merrier. B O R I N G !
As accountants at DGL we certainly don’t let the above ruin our fun… it’s time to celebrate another year of hard work with our Team, so on a positive note – enjoy the most wonderful time of the year, sit back, relax, drink, feast and make the most of the Christmas break with your loved ones. Stay safe, be merry and bright.
For more information including implications for tax-exempt bodies, please refer to the ATO website: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/FBT-and-Christmas-parties/
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
DGL Accountants are here to answer any of your questions in regards to the complexities of FBT, contact us today.