The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on a client’s business premises and consumed by current employees.
However, a taxable fringe benefit will arise in the following circumstances;
- Where an associate of an employee who attends the party, unless the minor benefits exemption applies; and
- Where the Christmas Party is held off premises, unless the minor benefits exemption applies;
Minor Benefits Exemption
Where you provide a Christmas party for your employees and their partners you don’t add the costs together, but instead look at the cost of the benefit provided to each person. Each benefit that is less than $300 (incl GST) may be a minor benefit and exempt if certain conditions are met.
The minor benefits exemption can apply provided you don’t use the 50/50 method in determining your entertainment fringe benefits.
Gifts provided to employees at a Christmas party
All benefits associated with the Christmas function should be considered separately to the Christmas party when considering the minor benefits exemption. For example, the cost of gifts such as bottles of wine and hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits.
Tax deductibility of a Christmas party
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) can’t be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT but are not income tax deductible.
Christmas party held off the business premises
The costs associated with Christmas parties held off your client’s 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.