It is a time of the year when giving is encouraged. As a business owner, you may want to make sure you have all the information available to you, so that you are fully aware of your tax obligations this Christmas.
Christmas parties
The cost of food and drink associated with a Christmas party is exempt from fringe benefits tax (FBT) if they are provided on a working day on your business premises and consumed by current employees. This exemption is only available for employees, not associates.
The provision of a Christmas party held off your business premises may also be exempt from FBT under the minor benefits rule if the cost of the party is less than $300 per employee. The FBT exemption also applies to an associate of your employee, as long as the benefit remains under $300 per employee.
Christmas gifts
Under the minor benefits rule, providing a gift to an employee is also exempt from FBT as long as the value of the gift is less than $300 under the minor benefits rule.
Tax deductibility of a Christmas party
The cost of a Christmas party can only be claimed as a tax deduction if it is subject to FBT. Therefore, if your party is less than $300 per employee, then you cannot claim the cost as a tax deduction.
Inviting clients or customers?
Generally speaking, inviting clients or your customers to a Christmas party is not subject to FBT. However, as the Christmas party is considered to be providing entertainment, the cost of clients attending the party is not income tax deductible.
Here's an Example
You decide to hold a Christmas party for your 60 employees, along with 20 of the employees’ partners and 10 clients. The overall cost of the Christmas party totals $9,000 including gifts.
The cost of the party is not subject to FBT as the cost is considered a minor benefit to your employees and their associates. Also, the cost associated with your clients attending does not attract FBT.
The average cost of your employees and their associates is $100 per person, being under the FBT limit. As no FBT applies, this cost ($8,000) is not tax deductible.
The $1,000 of cost allocated to clients is also not tax deductible as it is considered the provision of entertainment which is specifically denied as a deduction.
Talk to us about your entertainment and gifting plans this Christmas. We can advise on the tax deductability or your obligations.