With the festive season quickly creeping up on us we thought it was important to do a recap on the Fringe Benefits Tax (FBT) rules which apply to Christmas parties. When it comes to celebration and generosity, the ATO isn’t nearly as merry as the man in the red suit!
So… Is A Staff Christmas Party Tax Deductible?
It depends… Tax laws regarding gifts to employees and clients can be complex.
Gifts and meals and entertainment provided at the Christmas party may attract Fringe Benefits tax, which is tax applied on benefits provided by companies to employees.
Non-entertainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 (including GST). These include wine, flowers and hampers for example. The business can also claim a tax deduction and any applicable GST credits.
Providing entertainment through meals or at your Christmas party has different tax implications. If the cost for each employee is less than $300 (including GST), FBT is not payable, but no tax deduction or GST credit can be claimed. Examples of entertainment gifts include tickets to the theatre, a movie, sporting event, or gift cards.
A gift and meals/entertainment provided at the Christmas party are viewed as separate benefits for the $300 minor benefits limit, which means employees can have twice the fun without FBT applying.
If you provide an employee with a non-entertainment gift that is more than $300 GST inclusive, FBT may be payable at the rate of 47% on the grossed-up value however a tax deduction and GST credit can still be claimed.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules. Generally, a tax deduction and GST credit can be claimed for gifts to clients, provided they are not excessive.
The best tax outcome for your business this Christmas is keeping to the $300 rule and to give staff, customers and suppliers non-entertainment type gifts.