It is a time of the year when giving is encouraged and treating your employees to some fun to close the year out is expected. The festive season is fast approaching, and if you are a business owner there’s a good chance that you’ll be planning some sort of Christmas party for your staff.
Becoming confused about the rules of what are tax-deductible expenses and subject to Fringe Benefits Tax in relation to Christmas parties is common. As a business owner, you may want to make sure you have all the information available to you so that you are fully aware of your tax obligations this Christmas before you go “splashing cash” at the work Christmas party.
Is my work Christmas party tax deductible?
Entertainment in many cases is subject to FBT (Fringe Benefits Tax), and the ATO considers a Christmas party to be just that… ‘entertainment’. But there are a few situations where you will be exempt from FBT.
Generally, if the Christmas party is held on a business day on the work premise and only employees attend, then it will be FBT exempt.
Another way to not be subject to FBT is to keep the cost of food and drinks consumed by the employees to less than $300 per head. However, there is no tax deduction or GST input credit claimable.
On the other hand, you could have a Christmas party off-site for employees and their partners at a nice pub or restaurant, but be sure to keep the ‘entertainment’ expense below $300 per employee or it will be subject to FBT.
Inviting clients or customers?
Generally speaking, inviting clients or your customers to a Christmas party is not subject to FBT. However, as the Christmas party is considered to be providing entertainment, the cost of clients attending the party is not income tax deductible.
Christmas gifts
Under the minor benefits rule, providing a gift to an employee is also exempt from FBT as long as the value of the gift is less than $300. Or, it may be a better idea to thank your staff through the act of giving certain items known as “non-entertainment” gifts. These non-entertainment gifts must cost less than $300 but are fully tax-deductible and carry no FBT. Non-entertainment gifts are usually exempt from FBT when the total cost of the gift is less than $300 (inclusive of GST). An employer can also claim tax deductions and GST credits for every non-entertainment gift to staff members. These gifts could include beauty or skincare products, flowers, wine, gift vouchers or hampers.
Talk to our specialist tax advisors at Elements Advisory Group about your entertainment and gifting plans this Christmas and tax obligations. Call us today on 07 3878 9181.
