FBT and Christmas Parties

Hey, are you planning to throw a Christmas party for your staff this year? If so, you might want to know how the taxman will treat your festive expenses. In this blog post, I'll explain deductible entertainment expenses and provide examples. I will also explain what aren't deductible entertainment expenses with examples.

First, you need to know that Christmas parties are considered "entertainment benefits" by the Australian Taxation Office (ATO). This means they may be subject to fringe benefits tax (FBT) if you provide them to your employees or their associates (such as spouses or children). FBT is a tax employers pay on certain benefits they provide to their employees, such as cars, loans, or meals.

However, not all Christmas parties are subject to FBT. Some exemptions and thresholds can reduce or eliminate your FBT liability. For example, if you spend less than $300 per person on the party, which is infrequent and irregular, you may be able to claim the "minor benefits" exemption. This means that you don't have to pay FBT on the party, but you also can't claim an income tax deduction for the cost of the party.

Another exemption is the "exempt property benefit". This applies if you hold the party on your business premises on a working day, and only your current employees attend. In this case, you don't have to pay FBT on the party, but you can still claim an income tax deduction for 50% of the cost of the party.

On the other hand, if you hold the party off-site, invite non-employees (such as clients or contractors), or spend more than $300 per person, you may have to pay FBT for the party. The amount of FBT you pay depends on whether you use the "actual method" or the "50/50 method" to calculate your entertainment expenses. The actual method requires you to keep records of who attended the party and how much you spent on each person. The 50/50 method allows you to claim an income tax deduction for 50% of the total cost of the party but also requires you to pay FBT on 50% of the total cost of the party.

What about gifts for your employees? Well, that depends on what kind of gift you give them. If you give them a non-entertainment gift, such as a hamper, a voucher, or a bottle of wine, you don't have to pay FBT if the value of the gift is less than $300 per person. You can also claim an income tax deduction for the full cost of the gift. However, if you give them an entertainment gift, such as tickets to a concert, a movie, or a sporting event, you may have to pay FBT if the value of the gift is more than $300 per person. You can't claim an income tax deduction for any entertainment gifts.

As you can see, many factors affect how your Christmas party and gifts are taxed. Planning ahead and keeping track of your expenses and attendees is important. Please contact us anytime if you need more help understanding your FBT obligations and options.

I hope you have a merry Christmas and a happy new year!