According to the ATO, it’s actually more tax effective to both give a gift and hold a Christmas party, rather than hosting a more elaborate party. A gift and the party are viewed as separate benefits for purposes of the $300 limit, which means employees can have twice the fun without FBT applying.
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. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.
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. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
Exempt Benefits – Minor Benefits
You should note the change in the ATO view to the application of the minor benefits exemption to Christmas parties and gifts. The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated 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.
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.
Christmas Parties 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.
Example
A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine. The implications for the employer in this situation would be as follows.
| IF... |
THEN... |
| Current employees only attend |
There are no FBT implications as it is an exempt property benefit. |
| Current employees and their associates attend at a cost of $180 per head |
For employees - there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
For associates - there are no FBT implications as the minor benefit exemption applies.* |
| Current employees, their associates and some clients attend at a cost of $365 per head |
For employees - there are no FBT implications as it is an exempt property benefit
For associates - a taxable fringe benefit will arise as the value is equal to or more than $300
For clients - there is no FBT payable and no income tax deduction. |
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Christmas Parties Held Off the 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.
Example
Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.The implications for the employer in this situation would be as follows.
| IF... |
THEN... |
| Current employees only attend at a cost of $195 per head |
There are no FBT implications as the minor benefits exemption applies.* |
| Current employees and their associates attend at a cost of $180 per head |
There are no FBT implications as the minor benefits exemption applies.* |
| Current employees, their associates and clients attend at a cost of $365 per head |
For employees - a taxable fringe benefit will arise
For associates - a taxable fringe benefit will arise, and
For clients - there is no FBT payable and the cost of providing the entertainment is not income tax deductible. |
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
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.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
The above information is intended as a guide only. Please contact Nexis Accountants if you require additional information or clarification on any issues or rules.