While it can be quite fun celebrating the year’s achievements at the annual Christmas party, it pays to be aware of the tax implications of these celebrations.
Christmas parties can attract a Fringe Benefits Tax (FBT), a tax that applies where an employer provides a benefit to an employee other than their regular wage or salary.
A number of benefits are exempt from FBT, including the work Christmas party, providing they follow certain rules. The ATO allows employers a $300 threshold per employee for Christmas parties.
In addition to hosting a Christmas party, employers can also provide employees with gifts that cost less than $300 per employee. Therefore, employers can avoid a Fringe Benefits Tax bill providing they host a party that costs less than $300 per employee and also give each employee a Christmas gift worth no more than $300.
The most tax effective option is to hold your Christmas party on the business premises on a working day for current employees only. Expenses such as food and drink are exempt from Fringe Benefits Tax for employees, therefore, no tax deduction or GST credit can be claimed.
Employers should be aware that Fringe Benefits Tax can arise if a spouse or associate of a current employee attends. If the combined cost for the employees and associates is $300 or more per employee, Fringe Benefits Tax will be applicable on the associate’s portion of food and drink.
There are no FBT implications for clients attending the party, however, there is no income tax deduction or GST claimable.
For employers who choose to host the Christmas party off the business premises they will be FBT exempt providing the combined cost of employees and associates is less than $300 per employee. Any costs that are exempt from FBT cannot be claimed as an income tax deduction and no GST credit can be claimed.
Fringe Benefits Tax will apply if the combined cost of employees and associates who attend the party is over $300, however, an income tax deduction and GST credit can be claimed on that portion.
Alternatively, businesses can choose to simplify their FBT paperwork with the 50/50 method or the 12-week register method.
The 50/50 split method allows for 50 per cent of costs associated with entertainment to be subject to FBT and, therefore, tax deductible and the other 50 per cent non-deductible regardless of whether it was provided to an employee, associate or spouse.
The 12-week register method involves tracking the taxable value of each individual fringe benefit for a continuous period of 12 weeks
For queries about Fringe Benefits Tax call your friendly accountant at Leenane Templeton on (02) 4926 2300 or go to our contact page.