• Fringe benefits tax and Christmas parties

    Christmas parties

    There is no separate fringe benefits tax (FBT) category for Christmas parties and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.

    Implications for taxpaying body

    If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.

    Exempt property benefits

    The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefit exemption is only available for employees, not associates.

    Exempt benefits – minor benefits

    The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.

    Gifts provided to employees at a Christmas party

    The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.

    Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

    Tax deductibility of a Christmas party

    The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.

    The costs of entertaining clients are not subject to FBT and are not income tax deductible.

    Christmas party held on the business premises

    A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.

    Example
    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.

    End of example
    Employer implications

    The implications for the employer in this situation would be as follows.

    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.

     

    * Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

    Christmas party held off business premises

    The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.

    Example
    Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.

    End of example
    Employer implications

    The implications for the employer in this situation would be as follows.

    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.

     

    * Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

    Implications for tax-exempt body

    If you are a tax-exempt body, the following explanations may help you determine the FBT implications arising from a Christmas party.

    Gifts provided to employees at a Christmas party

    A Christmas gift or hamper provided to an employee that meets the conditions of the minor benefits exemption rule and is less than $300 will not attract any FBT.

    Christmas party held on business premises

    The exempt property benefits (property benefits provided on your business premises) would not apply as the tax-exempt body entertainment provisions would apply.

    The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.

    For tax-exempt body entertainment fringe benefits the minor benefit exemption is only available in the following circumstances:

    - where the provision of entertainment is incidental to the provision of entertainment to outsiders, and does not consist of a meal other than light refreshments; or

    - a function is held on your business premises solely as a means of recognising the special achievements of your employee in a matter relating to the employment of your employee.

    Example
    A tax-exempt organisation decides to run a Christmas morning tea for its sponsors. Employees attend as well. There would be no FBT implications as the minor entertainment benefit provided to the employees is incidental to entertaining the sponsors and only light refreshments are provided.

    End of example

    Christmas party held off business premises

    The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply. The example immediately above will apply in these circumstances.

    See also:

      Last modified: 29 Nov 2016QC 17787