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Work Christmas Parties, Gifts and FBT – what you need to know

‘Tis the season to be jolly!

If you’re involved in the administration of fringe benefits tax (FBT) for your organisation, be sure to plan ahead and consider the FBT implications of providing Christmas parties and gifts.

When planning your Christmas party list and checking it twice, consider:

  • how much it costs
  • where and when it is held – a party held on business premises on a normal work day is treated differently to an event outside of work
  • who is invited – is it just for employees, or are partners, clients or suppliers also invited?

Christmas presents or gifts may also attract FBT, so you will need to consider the following

  • the amount you spend
  • the type of gift – gifts of wine or hampers are treated differently to gifts like tickets to a movie or sporting event
  • who you are giving the gift to – there are different rules for employees and clients or suppliers.

Don’t get your tinsel in a tangle this festive season, start planning now for how much FBT you will have to pay on top of the costs of the function and gifts.

 

 

Fringe benefits tax and Christmas parties

Christmas parties

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.

Implications for a taxpaying body

If you are not a tax-exempt organisation and do not use the 50-50 split 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. The property benefit exemption is only available for employees, not associates.
  • Exempt benefits – minor benefits
    The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
  • Gifts provided to employees at a Christmas party
    The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt 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) cannot be claimed as an income tax deduction. The costs of entertaining clients are not subject to FBT and are not income tax deductible.

 

What do I need to know about a Christmas party held on the 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. We have outlined an example below to help you understand what this means and how you might apply this in your business. 

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.

What are the employer implications
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 – 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.

 

What do I need to know about a 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. We have outlined a simple example below to help you understand what this means and how you might apply this in your business

Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.

What are the employer implications
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 clients attend at a cost of $365 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.

 

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

 

 

Got a question about your end of year Christmas Party? Get in touch with our FBT experts now!

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