Christmas Parties & FBT: What you need to know

The most frequently asked questions this time of year pertains to Christmas parties. Specifically, are they tax deductible and are they subject to Fringe Benefit Tax (FBT).

Let’s address Fringe Benefit Tax (FBT) first.  The costs associated with Christmas parties held off site i.e. at a restaurant, will be subject to FBT unless the benefits are ‘exempt minor benefits’.

‘Exempt minor benefits’.  The Christmas party costs may qualify as an ‘exempt minor benefit’ if the cost of the Christmas party is less than $300 per employee. The benefit provided to an associate of the employee may also be a minor benefit and also exempt from FBT where the cost of the party for each associate of an employee is also less than $300.

Where possible we want to minimise our FBT liability as it is subject to 47% tax.

Now for the second part of the equation. The tax deductibility of Christmas parties.

The cost of providing the Christmas party is tax deductible only to the extent that it is subject to FBT. Therefore, if the costs are exempt from FBT per the definition above than your business cannot claim a tax deduction for the Christmas party expenditure.

What about clients? Note the cost of entertaining your clients is not subject to FBT and it is not tax deductible expenditure.

Tax deductions and fringe benefit tax (FBT) pertaining to Entertainment and Christmas parties can be quite complicated. Should you have any questions please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.