Is my office Christmas party tax deductible?

Is my office Christmas party tax deductible?

Tis the season to be jolly! And think about fringe benefit tax!! Oh just us?

With Christmas upon us, many Australian businesses are deciding to show their employees and clients appreciation by hosting Christmas parties or providing gifts. However, each year many businesses make the mistake of thinking that these costs re automatically tax deductible. In this weeks blog post we will explain how you can ensure you don’t make this common mistake this Christmas!

Christmas parties are categorised According to the ATO, Christmas parties fall under the category of entertainment, meaning they can be subject to fringe benefit tax (FBT). FBT is an additional tax paid by employers for certain benefits, including entertainment, that they provide to their team. Where FBT is paid, in most cases you can also receive a tax deduction for the cost of the benefit.

Generally, Christmas parties are considered to be entertainment, meaning that FBT applies, however an exception to this rule arises due to the minor benefit exemption.

Minor Benefit Exemption

If the cost of a company Christmas party is less than $300 per employee, this will be categorised as a minor benefit. Associates (e.g. friends and family members) of an employee may also be classified as a minor benefit and exempt if the total cost of the party for each associate of an employee is less than $300.

Christmas party held on the business premises

A Christmas party that is held on work premises on a workday may be an exempt benefit so long as the cost per head of the benefit is less than $300, therefore making it a minor benefit.

Example: The Solution In employee Christmas function is held at a restaurant on a working day before Christmas and provides meals, drinks, and entertainment.

​Scenario	​Does FBT Apply?
​Only current employees attend at a cost of $216 per head.	​FBT does not apply as minor benefit exemptions are met.
​Both current employees and their associates attend the Christmas party at a cost of $180 per head.	​FBT does not apply as minor benefit exemptions are met.
​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.

Christmas party held off business premises

Once again, 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 however, the benefits are exempt minor benefits, meaning they are less than $300 per head.