Christmas parties: FBT implications and tax deductions

Tax deductions and Christmas parties

If you are the owner of a small business there is a high probability that you will be in the process of organising your work Christmas party.

The purpose of this article is to highlight what is tax deductible, what’s not tax deductible, what is subject to Fringe Benefits Tax (FBT) and what is exempt from FBT.

Are you intending to hold the Christmas party on your business premises?

If so, the food and drinks provided for employees at the office Christmas party are exempt from FBT if the Christmas party is on a work day on your business premises.

The cost of ‘associates’ attending the Christmas party may be subject to Fringe Benefits Tax unless it is a ‘minor benefit’.

‘Associates’ are defined as people associated with you and your employees, such as, relatives, partner in partnership, etc.

‘Minor fringe benefits’ – If the cost of the party for each associate is less than $300 per head.

Therefore, if the Christmas party is for employees and associates and held on business premises there will be no FBT where the cost per head is less than $300.

Tax deductibility:

Where the Christmas party is held on business premises, and the cost is less than $300 per head whilst there is no FBT the employer will not be able to claim a tax deduction for this expense.

Note also that the costs of entertaining clients are not subject to FBT and not subject to an income tax deduction.

Are you intending to hold your Christmas party at a restaurant or function centre?

For the employees there would be no FBT implications so long as it is considered a ‘minor benefit’.

For associates there would be no FBT implications so long as it is a ‘minor benefit’.

For clients there is no FBT and the cost of providing their entertainment is not tax deductible.

Gifts to employees at a Christmas party

A Christmas gift or hamper that satisfies the condition of a minor benefit will not attract FBT.

Tax deductibility:

The cost of providing the above benefits are tax deductible only to the extent that they are subject to FBT. Therefore, any cost that are not subject to FBT such as ‘minor benefits’ you cannot claim as a tax deduction.

Should you have any questions with regard to Christmas party tax deductions, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.