December is around the corner and what is more exciting than the fleeting thought of Christmas approaching! You might not have planned a Christmas party for your team or your company yet, but it’s definitely on your ‘To Do’ list.
You are probably considering factors such as tax implications while swaying from one idea to another. Well, that is natural when you are running a business; you need to take into consideration these important factors. You may or may not be aware of taxes known as fringe benefits taxes (FBT) that are implied on events that you hold for your employees. However, you may be wondering whether the Christmas party that you wish to hold for your employees is a tax deductible.
This is a genuine concern for many. Let’s make one thing very clear – there is no “separate” fringe benefit tax for Christmas parties. If your business is not a tax-exempt organization, that is not making use of the 50-50 split method for entertainment parties, the following scenarios will help you understand and find out whether there will be FBT implications coming up from arranging Christmas parties.
- Benefits of the property: Costs of foods and drinks in Christmas parties are not a part of FBT, if, and only if, they are provided within the business premises, provided on a working day and is consumed by the current employees only. This ‘property’ benefit being discussed is only applicable for employees and not for associates.
- Minor benefits: The supplies in a Christmas party may act as a minor benefit if the cost is less than $300 for each employee and certain other conditions are met. This is the same for the associates, it acts as a minor benefit if the price is less than $300 per employee. This mainly applies for each benefit provided and not the total value of all benefits.
- Gifts provided: Gifts given to employees on Christmas parties or events if less than $300 can be considered as a minor benefit. This limit is the same whether it be Christmas, birthday, anniversary or say a wedding or baby. The above benefits and the gift benefit should be determined separately in order to understand clearly if they are less than $300 in value. If we look at both, the Christmas party, as well as the gifts, are less than $300 in value, then both will be considered as exempt benefits. Gifts, if under $300 and irregular and ‘physical’, are deductible and GST claimable. A physical gift might be wine, a bottle of whiskey, flowers, perfume, gift voucher, hamper, pen set etc. If the gift is ‘entertainment’ (ie a movie ticket, show ticket, massage, holiday) then it’s not deductible as it’s considered entertainment, even if under $300.
- Tax deductibility: Only if the Christmas party is associated with FBT, it is considered as an income tax deductible. Therefore, if you have any costs or taxes that are exempt from FBT, these cannot be taken as tax deductibles. Thus, if the cost of entertaining your clients or employees is not associated with FBT, there is no tax deduction. That means you cannot claim either the deduction or the association GST. These should be coded to an expense category called “Entertainment”.
- On-site party: As mentioned earlier, if you have the business party being held in your business premises then exempt benefits may apply. You also need to be aware of the fact that the party needs to take place on a working day. However, the cost of the associates who attend the party will not be considered as exempt only if it is a minor benefit.
The Australian Taxation Office’s (ATO) view is that only if the Christmas party is subject to the FBT then can it be considered a tax deductible. Thus, if there are any exempts from FBT as a part of the Christmas party (food and drinks cost, gift costs and more), it cannot be claimed as a tax deductible. Let us now take a close look at some of the examples that have been put forth by the ATO themselves:
- Scenario 1 – You are planning to arrange a Christmas party. You have decided to hold the event on a working day and only your current employees have been invited to the party. You are also providing them with food and drinks. Well, in this case, there is no FBT charges payable on the Christmas party as it is taking place within the business premises. As it is not considered an FBT payable then you cannot claim any kind of tax deductibility.
- Scenario 2 – You are planning to arrange a Christmas event in your office, on a regular working day. You have invited all your employees and their partners to the event. You are providing them all food and drinks as well. In this case, if the value of the food and drinks that you provide is less than $300 for one person, no FBT payable is allocated as it is considered both a minor benefit and an exempt property benefit. Again, as FBT is not payable thus no claims can be made for tax deductions. However, if the value of the food and drinks is more than $300, then FBT will apply, but only to the partner’s share, which will also be a tax deductible.
- Scenario 3 – You have decided to a Christmas party at a restaurant and only your staff and their partners have been invited to attend. In this case, FBT is definitely payable for both your staff and even their partners. By all means, a tax deduction can be claimed for all the costs involved in the Christmas party and even the associated FBT.
Thus, there are various factors that you need to consider as a business owner or team manager if you are willing to hold a Christmas event for your staff and or their partners. There are various scenarios as mentioned earlier, which helps you better understand how things work. Now that you are aware of it all, when are you deciding to plan your Christmas event? Time is running out and Christmas is around the corner, act quickly!
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At Tax Depot, we service Logan, Springwood and Beenleigh clients in all areas of taxation, tax planning, bookkeeping and business accounting services. If you need assistance or advice from our CPA qualified accountants, call us today on 1300 722 955; we would be only too happy to discuss how we can help you and your business.
Noel Ryan BCOM CPA
1300 722 955
0417 486 732
Unit 4 92 George Street
PO Box 1134
Beenleigh Qld 4207