With the silly season well and truly upon us, many businesses are looking to recognise and reward their staff’s efforts with a Christmas Party. This can be a great way to bring the team together and to celebrate successes in an informal and festive way. It’s important to remember, that a party generally constitutes ‘entertainment’ and may be subject to fringe benefits tax (FBT).
Reminder: Fringe Benefits Tax (FBT) is the tax employers pay on benefits they provide to employees and their family and other associates in addition to their salary or wages.
When is a Christmas party NOT entertainment for tax purposes?
According to the ATO, ‘entertainment’ is generally considered a fringe benefit for staff. Is it possible, therefore, to host an entertaining festive event and not be subject to fringe benefits tax? Well… it depends on how entertaining you want the party to be!
An FBT-exempt Christmas party:
- would be held during business working hours.
- would be held on the business premises.
- would include only business employees (no spouses, children etc)
- would include only finger food or a light meal.
- would NOT include any alcohol.
- would cost less than $300 per staff member present.
However, if family members were invited to come along, any costs incurred by the business on behalf of those plus-ones would generally be subject to FBT. When the business pays FBT they can then claim input tax credits and an income tax deduction for these entertainment costs incurred. However, if the cost incurred was less than $300 per person, the ‘minor benefit exemption’ might be available. If this exemption were used, no FBT would be payable, but nor would input tax credits or income tax deductions be claimable.
A Christmas party considered to be ‘entertainment’ for tax purposes:
- would be held after normal business hours or off-site.
- could include family members.
- could include a meal and/or alcohol.
- and would possibly be more fun!
The tax implications of your (more entertaining) Christmas party
If, for instance, you decide to throw a work Christmas party down at the pub, in an Italian restaurant or at your local barefoot bowling green, any Christmas party costs incurred by your business on behalf of employees and their family members will generally be subject to fringe benefits tax. As mentioned above when costs are subject to FBT, your business will be entitled to claim input tax credits and an income tax deduction, for the entertainment expenses incurred.
As per the less-entertaining on-site party, though, the ‘minor benefit exemption’ may also be available for these benefits (where they do not exceed $300 per person). If the exemption is utilised, no input tax credits, or income tax deductions will be claimable.
Inviting clients and suppliers to a company Christmas party
Whether your party is held on- or off-site, the costs incurred by your business by inviting clients or suppliers to your festive gathering will not be subject to FBT, but nor will input tax credits or income tax deductions be claimable.
Need help with tax advice this Christmas? Call the Geelong business tax experts.
Worrying about doing the right thing taxation-wise does not exactly invoke Christmas cheer. Applying the correct taxation treatment on your festive expenses, however, will definitely save you from complications with the ATO down the track.
LBW’s business accounting and tax team has the capacity to manage all aspects of your tax affairs, including festive expenses. For advice and assistance, reach out to the team today.