Christmas Parties And Fringe Benefits Tax
Tue 11th Dec, 2012
The ATO is reminding businesses that while staff Christmas parties can attract fringe benefits tax (FBT) there may be exemptions available depending on the venue and cost per employee.
There are two main exemptions to FBT that could apply to Christmas parties — Exempt property benefits and exempt minor benefits.
Exempt Property Benefits
- Christmas party costs include things like food and drinks served for employees as part of a Christmas party.
- The cost to provide these goods is exempt from FBT if they are provided on a working day on business premises and consumed by current employees of that business.
If the property benefits exemption doesn't apply because the party is held at a restaurant or separate venue, the costs may be considered minor benefits and FBT exempt.
Exempt Minor Benefits
- Cost per employee must be less than $300.
- The exemption also applies to associates of employees such as spouses and children, provided the cost is less than $300 per associate.
- Gifts are also considered separately from the Christmas party so, provided the cost of a gift and the party are each less than $300, then both would be exempt from FBT.
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) cannot be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Christmas Party Held on Business Premises
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, unless it is a minor benefit.
Example
A small 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…
| If... | Then... |
|---|---|
| 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 $180 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 $365 per head. | For employees — there are no FBT implications as it is an exempt property benefit. For associates &mdash a taxable fringe benefit will arise as the value is equal to or more than $300. For clients - there is no FBT payable and no income tax deduction. |
* 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 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.
| If... | Then... |
|---|---|
| Current employees only attend at a cost of $195 per head. | There are no FBT implications as the minor benefits exemption applies.* |
| Current employees and their associates attend at a cost of $180 per head. | There are no FBT implications as the minor benefits exemption applies.* |
| Current employees, their associates and some clients attend at a cost of $365 per head. | For employees — a taxable fringe benefit will arise. For associates &mdash a taxable fringe benefit will arise. For clients - there is no FBT payable and the cost of providing the entertainment is not income tax deductible. |
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
