Is a staff Christmas party tax deductible?

The answer to this question depends on when and where you hold your Christmas party, who’s invited, and how much it costs per guest.

Work Christmas parties are considered entertainment (although many are less than entertaining) and therefore can be subject to Fringe Benefits Tax (FBT). In Australia, in the financial year 2019-20, the FBT rate is 47%, which is a great reason to try and avoid it. 

Where is the Xmas party?

First, let’s look at when and where your party will be held.

Exempt property benefits are the costs involved in the Xmas party like food and drink, these things are exempt from fringe benefits tax if they are provided on a working day, at the business premises, and are only consumed by current employees. 

This means if you put on a couple of platters for Christmas lunch in the office, on a normal work Friday, and only invite your immediate staff you should be exempt from paying FBT.

Holding the party at a restaurant or function venue? If the cost of the party per employee is less than $300 and certain conditions are met there are no FBT implications as the minor benefits exemption applies.

Minor benefits exemption is a benefit which the ‘notional taxable value’ less than $300, the benefit is provided infrequently, and the associated benefits are low, and it would be unreasonable to treat the benefit as a fringe benefit.

Who’s invited to the party and how much will it cost?

Inviting current employees, their partners or family, and clients to a Christmas party held either at the business or off-site:

• Employees only and costs per head less than $300 each - no FBT as minor benefits exemption applies. More than $300 each: at business - no FBT, at a restaurant - FBT applies.
• Partners or family and cost per head less than $300 each - no FBT as minor benefits exemption applies. More than $300 each - FBT applies.
• Clients - at business or at a restaurant - no FBT & no tax deduction.

Employee Christmas gifts

Christmas gifts can be a win-win, and not because of that old adage your mum used to bring out at this time of year about giving being as good as receiving. Rather, if the staff gift is under $300 per employee it’s seen as being exempt from FBT.

What if you hand out your Christmas gifts AT the party?! 

Well, apart from being a great boss you can still remain exempt from FBT if the cost per employee for the party and the gift are individually valued at less than $300. Phew.

What you give matters

However, what you give matters. We’re not talking about shoddy gifts of cheap wine or oversized coffee mugs which say ‘World Greatest Employee’, rather entertainment or non-entertainment classed gifts.

Non-entertainment gifts such as things like beauty or skin care products, flowers, gift vouchers, or food hampers given to employees at a cost of less than $300 each can be a tax deduction, exempt from FBT, and a GST credit can be claimed. Everybody wins!

However, if Santa decides to give your admin and stock control team presents regarded as ‘entertainment gifts’ like movie tickets, sporting event passes, tickets to music events, or a trip to Fiji, it changes the game. The tax deduction, GST, and FBT requirements for entertainment gifts vary depending on the value of the gift.

If, for example, the Gold Class Movie Tickets for the Lord of the Rings Trilogy Marathon for Narrelle from Accounts are less than $300, the ATO will insist you can’t claim it as a tax deduction or get a GST credit. But Narelle can enjoy around 11 hours of trecking across New Zealand with Frodo and the business gets a pass on the fringe benefits tax.

Alternatively, the gift of a Seasons Pass to the Gabba for Merv the Warehouse Manager costs more than $300, you hit the trifecta, FBT is payable, plus you can’t claim a tax deduction or a GST credit.

Seek professional tax advice

Thought planning the work Christmas party just involved booking the restaurant and setting the bar tab? If considering the tax implications of your holiday shin-dig or gift giving is a bit too much to add to the To-Do List this time of year we recommend seeking professional tax advice from your accountant to avoid giving more than you intended.

References - https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Getting-started/FBT-for-small-business/?page=23, https://www.ato.gov.au/rates/fbt/