Fringe benefits tax and Christmas parties
There is no separate fringe benefits tax (FBT) category for Christmas parties and you may encounter many different circumstances when providing these events to your staff.
Implications for taxpaying bodyIf 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 benefitsThe 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 benefitsThe 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 partyThe 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 partyThe 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.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Christmas party held on the business premisesA 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 premisesThe 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.
Implications for tax-exempt bodyIf you are a tax-exempt body, the following explanations may help you determine the FBT implications arising from a Christmas party.
Gifts provided to employees at a Christmas partyA Christmas gift or hamper provided to an employee that meets the conditions of the minor benefits exemption rule and is less than $300 will not attract any FBT.
Christmas party held on business premisesThe exempt property benefits (property benefits provided on your business premises) would not apply as the tax-exempt body entertainment provisions would apply.
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.
For tax-exempt body entertainment fringe benefits the minor benefit exemption is only available in the following circumstances:
- where the provision of entertainment is incidental to the provision of entertainment to outsiders, and does not consist of a meal other than light refreshments; or
- a function is held on your business premises solely as a means of recognising the special achievements of your employee in a matter relating to the employment of your employee.
Christmas party held off business premisesThe minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply. The example immediately above will apply in these circumstances.