Fringe Benefits Tax Considerations for Work Christmas Parties

As we approach the Christmas period, many businesses will now be considering the festive season, with planning and organisation of celebrations for workplaces, employees, clients, and associates well underway.

For employers and business owners, it is important to understand the Fringe Benefits Tax (FBT) implications which arise during this time when organising your Christmas Party or providing gifts as a show of appreciation for the work undertaken throughout the year.

We highlight a range of scenarios surrounding work-related Christmas Parties and gifts, and their associated FBT implications to you below:

Key Points

  • The costs of food and drink associated with your Christmas party are exempt from FBT if they are provided on a working day, on the business premises, and consumed by current employees;
  • A Christmas party may be a 'minor benefit' and exempt if the cost of the party is less than $300 per employee and certain considerations are met;
  • Christmas gifts to employees may be a 'minor benefit' that is an exempt benefit where the value of the gift is less than $300;
  • The cost of providing a Christmas party to your employees is income tax deductible only to the extent that it is subject to FBT;
  • The costs of entertaining clients are not subject to FBT and are not income tax-deductible.

How Fringe Benefit Tax Impact your Christmas Party?

As an employer, the costs (such as food & drink) associated with Christmas parties are exempt from FBT, as long as they are provided on a working day, on your business premises, and consumed by current employees.

Additionally, if you were to host your event offsite at a restaurant or similar, certain FBT implications would arise. This is because a Christmas party held offsite is regarded as an 'entertainment' expense which is generally not tax deductible unless it is associated with paying FBT. An exemption may be available for FBT if the cost per employee is less than $300.

If you invite associates such as family or friends, FBT would be determined by the per head costs of the function. However, if you invite clients or suppliers, there are no FBT implications for these guests and the cost of providing the entertainment is not income tax deductible.

Listed in the table below are certain circumstances surrounding office Christmas parties and where FBT may or may not apply:

Christmas party held on business premises on a working day
Scenario Does FBT Apply Income Tax Deduction Claim GST Credits
Current employees only attend Employees No FBT payable as this is an exempt benefit. No No
Current employees and their family/friends attend.  Cost of food & drinks $120/head Employees No FBT payable as this is an exempt benefit. No No
Family/Friends No FBT payable as this is an exempt benefit. No No
Current employees, their family/friends and clients attend. Cost of food & drinks $345/head Employees No FBT payable as this is an exempt benefit. No No
Family/Friends FBT applies  as cost more than $300/head Yes Yes
Clients No FBT   No No
Christmas party held off the business premises
Scenario Does FBT Apply Income Tax Deduction Claim GST Credits
Current employees only attend and cost $160/head Employees No FBT payable as this is an exempt benefit. No No
Current employees and their family/friends attend.  Cost of food & drinks $120/head Employees No FBT payable as this is an exempt benefit. No No
Family/Friends No FBT payable as this is an exempt benefit. No No
Current employees, their family/friends and clients attend. Cost of food & drinks $360/head Employees FBT applies  as cost more than $300/head No No
Family/Friends FBT applies  as cost more than $300/head Yes Yes
Clients No FBT   No No

Christmas Gifts - Staff vs. Client Gifts: How Fringe Benefit Tax may Apply

Understanding where FBT implications come into effect when providing gifts to staff or clients can be difficult, as it first must be determined whether the gifts are 'entertainment' or 'non-entertainment' in nature.

A 'non-entertainment' gift generally includes items such as Christmas hampers, a bottle of wine/spirits, gift vouchers, flowers, personalised stationery, etc. Whereas, a gift of an 'entertainment' nature is typically highlighted as client dining and drinks, or recreation/amusement activities - including theatre, cinema, or sporting event tickets; flights & accommodation for a holiday, or membership to a club.

We've outlined in the table below where FBT implications are involved in entertainment vs. non-entertainment gifting:

Gifts that are non-entertainment Gifts that are considered to be entertainment

Gifts provided to employees are tax deductible regardless of spend.

Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300, where the 'minor benefit' exemption applies.

Where non-entertainment gifts are provided to clients, they are not subject to FBT and are tax deductible regardless of spend.

Gifts provided to employees are not tax deductible, unless the gift is over $300 and subject to FBT. Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300 - where the 'minor benefit' exemption applies.

Where entertainment gifts are provided to clients, they are not subject to FBT and not tax deductible, regardless of spend.

Generally, it is considered that the best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 inclusive of GST per staff member, as the cost is fully tax deductible, with no FBT payable and GST credits can be claimed.

For More Information

If you are currently organising your staff or client Christmas party or considering gifting to employers / clients / suppliers, and need assistance in understanding where FBT implications may be involved, please contact the advisor team at Archer Gowland Redshaw on (07) 3002 2699 | info@agredshaw.com.au.
Leanne Badjou

Written by Leanne Badjou

   

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