The festive season is approaching, and many businesses look forward to hosting Christmas parties to reward their hard working team. However, these celebrations come with potential tax implications under the Fringe Benefits Tax (FBT) regime. Understanding how FBT applies to Christmas parties ensures that businesses remain compliant while minimising unnecessary costs.
This article touches on how FBT applies to staff Christmas parties.
What is Fringe Benefits Tax (FBT)?
FBT is a tax employers pay on benefits provided to employees (or their associates) in addition to their salary or wages. These benefits, known as fringe benefits, may include anything from company cars to entertainment expenses like staff functions and gifts.
For Christmas parties, the relevant FBT category is entertainment benefits, which covers food, drink, and entertainment provided to employees.
How Does FBT Apply to Christmas Parties?
The below excerpt is from the ATO website.
If your business holds a Christmas party:
- On a working day, on your business premises, and only for your current employees, you don’t pay fringe benefits tax (FBT) for the food and drink.
- Off your business premises, or the party includes associates of employees (such as their partners), you don’t pay FBT if the party is a minor benefit – that is, the cost for each person is less than $300 and it would be considered unreasonable to treat it as a fringe benefit.
- That includes clients, you don’t pay FBT for the costs relating to the clients.
- If you give your employees a Christmas gift, you don’t pay FBT if the value of the gift is less than $300 per person and it would be considered unreasonable to treat it as a fringe benefit.
Note – If the Christmas party is not subject to FBT, you can’t claim income tax deductions for the cost of the party.
Meaning costs incurred by a business for a Christmas party are generally not deductible anyway.
If you’re unsure about how FBT applies to your business’s Christmas party, please get in touch with us and we can assist.
DISCLAIMER: This is general information only and is not advice. Liability limited by a scheme approved under professional standards legislation.