Hosting an office or client Christmas party requires planning and it is important to understand the fringe benefits tax (FBT) implications. Appropriate planning may eliminate the FBT burden entirely.
If Christmas parties are held on the business premises on a normal work day, expenses such as food and drinks are exempt from FBT, regardless of the amount. However, no income tax deduction is available for such expenses nor are GST input credits allowable.
If family members of employees attend and the total cost (per family) is under $300, again FBT will not apply, and no tax deduction and GST input tax credits will be allowable.
If the total cost per family is above $300, FBT will apply. However, an income tax deduction and GST input tax credits will be allowable.
Under the FBT legislation, a minor benefit exemption is available if the benefit provided is less than $300 per employee and is provided on an irregular basis. The hosting of a Christmas party is considered an irregular event and, as long as the cost per employee is below $300, the minor benefit exemption can be used to eliminate any FBT implications.
There are no FBT implications on the portion of expenses that relate to clients, regardless of the location of the Christmas party. As such, no income tax deduction and no GST input tax credits can be claimed for the client’s portion of the Christmas party expenses.
Many employers like to give gifts to their employees during the festive season, but these may attract FBT depending on whether they qualify as entertainment or non-entertainment gifts.
Entertainment gifts include items such as tickets to live concerts and movies. Non-entertainment gifts include gift hampers, vouchers, flowers and bottles of wine.
Daryl Jones, senior tax consultant, HLB Mann Judd Brisbane