Kicking up your heels with a staff Christmas party? Don’t forget the FBT

By Andrew Hayes, Director, Westlawn Business Services
19 November 2015

Will you be kicking up your heels with a staff Christmas party over the coming weeks?

When planning your event, you’ll naturally consider such important details as venue, food and drink, who’s invited, gifts, party theme and budget per head. And while you’re unlikely to invite anyone from the tax office, they will, nonetheless, take a keen interest in your Christmas party. So when planning this year’s event, don’t forget the FBT.

Off-site Christmas parties

For staff Christmas functions held off-site, such as a pub, restaurant or function centre, the cost of providing the party would normally be treated as a fringe benefit, with fringe benefits tax (FBT) payable by the employer.

However, if the cost per employee is less than $300, no FBT will be due. This is because of the minor benefits exemption. The minor benefits exemption applies to each benefit provided. This means that if you’re feeling generous and spend $290 per head on the party and then also give each employee a gift valued at a further $290, both expenses are free of FBT. This exemption also applies if spouses or partners come to the party.

If you spend more than $300 per head on the function, the whole lot will be subject to FBT, not just the excess.

And if your business covers taxi fares to and from the festivities, these will count as part of the $300 per head limit if the function is off-site.

See the example in the table below.

Christmas parties held at work on a working day

Christmas party costs (such as food and drink) are exempt from FBT if they’re provided on a working day on your business premises and consumed by current employees. If employee spouses or other guests are invited, there could be an FBT liability unless the cost is covered by the minor benefits exemption (outlined above).

If your business covers taxi fares to and from the party, these will be FBT exempt if the party is held at your premises.

See the example in the table below.

For all occasions

If the cost of your Christmas party is exempt from FBT, it isn’t tax deductible for income tax purposes. Nor can the business claim GST credits for the costs.

Even though gifts are also covered by the FBT exemption, they generally are tax deductible and a GST credit can be claimed.

If you hold a party for customers and contacts, there’s no FBT but the costs are not income tax deductible.

Generally, there will be no tax impact for employees.

Contact your Westlawn Business Services Accountant if you have any questions about the tax implications of your staff Christmas party.

Christmas party held off business premises

Company A holds its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.

Implications for the employer would be:

If…Then…
current employees only attend at a cost of $195 per headthere are no FBT implications as the minor benefits exemption applies.*
current employees and their associates attend at a cost of $180 per headthere are no FBT implications as the minor benefits exemption applies.*
current employees, their associates and clients attend at a cost of $365 per head
  • for employees – a taxable fringe benefit will arise
  • for associates – a taxable fringe benefit will arise, and
  • for clients – there is no FBT payable and the cost of providing the entertainment is not income tax deductible.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Christmas party held on business premises

Company B has a party on its business premises on a working day before Christmas. The company provides food, beer and wine.

Implications for the employer would be:

If…Then…
current employees only attendthere are no FBT implications as it is an exempt property benefit.
current employees and their associates attend at a cost of $180 per head
  • for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
  • for associates – there are no FBT implications as the minor benefit exemption applies.*
current employees, their associates and some clients attend at a cost of $365 per head
  • for employees – there are no FBT implications as it is an exempt property benefit
  • for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
  • for clients – there is no FBT payable and no income tax deduction.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

To discuss the tax implications of your staff Christmas party, contact your Westlawn Business Services Accountant:

Copyright © 2015 

Disclaimer

Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.

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