Christmas parties, gifts and tax
There is no separate fringe benefits tax (FBT) category for Christmas parties.
You may encounter many different circumstances when providing these events to your staff.
Fringe benefits provided to, 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.
Implications for FBT
The following explanations may help you determine whether there are FBT implications arising from a Christmas party.
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. The property benefits exemption is only available for employees, not associates.
Exempt benefits – minor 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. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
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. If both the Christmas party and the gift are each less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is entertainment and so is income tax deductible only to the extent that it is subject to FBT. Therefore, any party costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction and note that no GST is claimable.
Tax deductibility of gifts for clients
Giving gifts to clients at Christmas time is always popular and may help you win new clients and generate more income for your business. Under Australian Tax Office (ATO) rules, gifts given to a current or former client may be deductible at tax time if they are offered with the intention of generating future assessable income.
Watch out for gifts by way of entertainment. If you take a client to dinner or give them tickets to the theatre or a sporting event, you will then fall into the realms of FBT on entertainment. A hamper, a bottle of wine or some chocolates will keep things simple.
So what does that mean?
Have fun. Don’t let the taxation Grinch steal Christmas. Look after your team and colleagues.
Accept that you won’t get a tax deduction and you can’t claim GST for your team Christmas party and move on. Taxation is not logical, fair or enjoyable, but don’t get hung up on it.
Spend money wisely. Watch out for the $300 limit.
Take care, drive safe, eat, drink and be merry.
