It’s the Grinch of end of year celebrations – having to pay Fringe Benefit Tax (FBT) for putting on a staff Christmas party!
How can I owe tax if I put on a staff Christmas party?
Surely you should be able to claim a tax deduction for the expense of dining and wining my entire team? The ATO doesn’t have a special category for Christmas parties, and “providing entertainment” to your employees can be considered a benefit, which in turn can attract FBT obligations.
The ATO considers “providing entertainment” as the following:
- providing entertainment by way of food, drink or recreation,
- providing accommodation or travel in connection with such entertainment, or
- paying or reimbursing expenses incurred in obtaining something covered by the above points.
As you can see, Christmas parties well and truly hit those criteria.
When the “Party Tax” does not apply:
- If the entertainment is provided on a working day,
AND
- On your business premises,
AND
- Only used by current employees.
But, can I at least claim a tax deduction for the cost?
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. That means any costs that are exempt from FBT can’t be claimed as an income tax deduction (this is why it’s important to talk to a professional).
It’s worth noting that the costs of entertaining clients (rather than staff) are not subject to FBT, but are also not income tax deductible.
Here is a summary of when FBT applies around Christmas time.
This is only general advice and you should always speak to your Aintree Group advisor for further assistance.
Location Matters – Examples from the ATO:
Your “Party Tax” obligations will differ depending on whether the party is held on business premises or not. Holding your Christmas party offsite somewhere like a restaurant, will bring about a taxable fringe benefit for employees and any family or friends they bring along, unless the benefits are considered “exempt minor benefits”. See the examples below for a direct comparison.
Example 1 – The party is held on business premises
“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.”
The implications for the employer in this situation would be…
| 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. |
Example 2 – The party is held offsite
“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…
| 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. |
There are so many different tax circumstances that can arise, depending on the nature of your staff events. And that applies all year round, not just with Christmas parties.
We highly recommend you talk to your tax agent about the impact staff functions can have on tax.
Read more on the ATO website.
Want more advice specific to your situation? Get in touch.
