There is no separate fringe benefits tax (FBT) category for Christmas parties and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, 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. The outcome may be different if, for example, the hampers were distributed in the office two days before the Christmas party
If you are not a tax-exempt organisation and do not use either the 50-50 split method or the 12-week register method for meal entertainment, 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 . A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
A Christmas party may be a minor benefit and exempt if the cost of the party is less than $100 per employee and certain conditions are met. The cost per employee includes the cost for any of their associates attending the party.
All benefits associated with the Christmas function should be grouped to determine whether the total value meets or exceeds the $100 minor benefits threshold. For example, the cost of gifts such as bottles of wine and hampers given at the function would be included in the total cost of the party.
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The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt.
Example
A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine.
The implications for the employer in this situation would be as follows.
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If... |
Then... |
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current employees only attend |
there are no FBT implications as it is an exempt property benefit. |
|
current employees and their associates attend at a cost of $45 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 $165 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 $100
- for clients – there is no FBT payable and no income tax deduction.
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* 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 off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
Example
Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.
The implications for the employer in this situation would be as follows.
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If... |
Then... |
|
current employees only attend at a cost of $95 per head |
there are no FBT implications as the minor benefits exemption applies.* |
|
current employees and their associates attend at a cost of $45 per head |
there are no FBT implications as the minor benefits exemption applies.* The per head cost for an employee includes the cost of any of their associates attending the function. If the combined cost is $100 or more, it will not be an exempt minor benefit. |
|
current employees, their associates and clients attend at a cost of $165 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.
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* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
For more information please contact us on (03) 9886 4822.
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