It is a long-held tradition for Australia business to celebrate the end of the year with an annual Christmas party as it is a great opportunity for business owners to say “thank you for your work this year” to their employees.
Not only is this tradition long held, but there is also a long-held misconception or misunderstanding of the taxation implications of these parties and associated celebration and gift giving. Particularly unclear for many businesses are the fringe benefits tax liabilities that may be arising at Christmas time.
Does a Christmas Party attract Fringe Benefits Tax?
There is no specific fringe benefit category for Christmas Parties, but they can be caught through a combination of meal entertainment and property benefits. So short answer is – Yes, having a Christmas Party for your employees and their associates (such as a spouse) is a fringe benefit.
Can a Christmas Party be FBT exempt?
Christmas Parties can be exempt for FBT is they are held on a working day on the business premises. Any costs including the food & drink will be exempt to the extent that is provided to current employees only (not their associates)
What if the party is held offsite?
If you held a Christmas party offsite it may be a minor benefit and exempt from FBT if the cost of the party is less than $300 per employee. If an employee brings along an associate, then the minor benefit exemption may still apply if the total cost is less than $300 for the employee and their associate.
If the cost of the party exceeds $300 for an employee and their associates that it will be subject to FBT
How about gifts?
If you give gifts to employees at Christmas time it may be treated as an exempt value if the gift is less than $300 per employee. If this gift is given at the Christmas party than the combined cost of the party & the gift must be less than $300 per head to be exempt
HINT: don’t give your employees gifts at the Christmas party – try to give them on another day to increase the chance of FBT exemption.
What if we have too much fun and need to use taxis or Ubers to get people home safely?
The answer to this is, maybe. The cost of taxis and travel directly from the employee’s usual place of work to the Christmas party are FBT exempt. However, the cost of travel directly from home to work and back or directly from home to the party and back are subject to FBT.
Is any of this tax deductible?
If there is an FBT exemption applied to your Christmas party, then it will not be tax deductible.
However, if the expenses attract FBT which is paid, both the expense and the FBT paid will be tax deductible.
With any gifts given to your employees, if the gift is a not a meal entertainment gift it may be tax deductible if it is less than $300. Meal entertainment gifts include items such as theatre gifts, tickets to sporting events and flights and accommodation. Gifts such as flowers, wine, and hampers are non-entertainment gifts.
HINT: for more information on meal entertainment don’t forget to read our article on how to decide if food and drink attracts FBT
How should we provide Christmas Bonuses?
If you have decided to pay your employees a Christmas Bonus, and if you want to make sure its tax deductible, it needs to be paid as you would salary & wages. This means you will need to withhold taxes, pay superannuation and pay payroll tax (if applicable). The Christmas bonus will form part of your employees’ ordinary earnings to be reported on their PAYG Payment summary at the end of the year.
Our Favourite Places
Now that you have a better idea about the tax side of your Christmas celebrations, we hope that they are filled with fun, laughter and great food and wine. If you need some help in selecting great places to celebrate, two of our Sydney favourites are Love, Tilly Devine, and Dear Sainte Eloise. Two fabulous inner city venues that are not to missed, and it’s not just us that thinks so with both being listed in Broadsheets Best Wine Bars in Sydney
Author: Rebecca Mihalic