It’s almost December and you still haven’t decided what to do for the team Christmas party. You’re tossing with a few ideas and you want to understand the tax implications a little better. You understand that generally speaking, when you provide your employees with entertainment (such as a party), then you need to pay an extra tax known as fringe benefits tax (FBT). However you will also want to understand whether your Christmas party is tax deductible?
The ATO’s view is that the cost of a Christmas party is tax deductible only to the extent that it is subject to FBT. As a result, Christmas Party costs that are exempt from FBT (where the costs relate to exempt minor benefits and exempt property benefits) cannot be claimed as a tax deduction.
Below are some scenarios based on examples which the ATO has provided.
You decide to have a Christmas party in your office. It will be on a regular working day and only staff are invited to attend. Food and alcohol is provided
A: There is no FBT payable on the Christmas Party as it is exempt property benefit. However, as FBT is not payable, a tax deduction cannot also be claimed for this event.
Your Christmas party is held on a regular working day in your office and only current staff and their partners are invited to attend. Food and alcohol is provided.
A: If the value of the food and alcohol is less than $300 per person, no FBT is payable due to the benefit being considered both an exempt property benefit and a minor benefit for the respective parties. As FBT is not payable in this instance, a tax deduction cannot be claimed for this event.
However, if the value of the food and alcohol is $300+ per person, FBT applies only to the partner’s share which will be tax deductible.
Your Christmas party is held at a restaurant and only staff and their partners are invited to attend.
A: FBT is payable for both the staff and their partners. A tax deduction can be claimed for the cost of the Christmas party plus the associated FBT.
To learn more about whether your Christmas party is tax deductible, have a read of the ATO’s guidance found here.
As always, any questions ask your Nudge Accountant.