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Will you be rewarding your employees with an end-of-year Christmas party to celebrate? A dinner with drinks or a gift maybe? If you’re feeling particularly generous, maybe both?
That’s very kind of you. But make sure you’re across the financial implications to your business: Gifts and Christmas parties may attract tax.
Christmas parties and Tax Law
Entertainment is a complicated area of tax law.
When providing food and drink, your business needs to consider Fringe Benefits Tax (FBT), Goods and Services Tax (GST) and Income Tax.
There are also different tax treatments if the entertainment you are providing is for employees, associates, clients or suppliers - and it may differ depending on where you decide to hold your event.
Taxing Christmas parties at your workplace on a work day
If you’re holding a Christmas party at your workplace and providing food and drink (including alcohol) on a work day, there may be no FBT payable for employees, clients, contractors or suppliers. These costs are FBT-exempt.
Unfortunately, that means that there will be no income tax deduction and no GST credits to be claimed for your Christmas party either.
The same tax implications may apply if you pay for the cost of a taxi or Uber to send your employees, clients, contractors or suppliers home after a few too many drinks.
There may be different treatment from a tax perspective if associates (spouses and children) attend: with FBT payable, an income tax deduction may be allowed and GST credits could be claimed.
FBT exemptions may apply if the cost is less than $300. This amount is considered a ‘minor exempt benefit’.
Taxing Christmas parties held at a restaurant, bar or other venue
If you’re holding your Christmas party at a location other than your workplace, and providing food and drink (including alcohol) to employees and associates, FBT may be payable unless the costs of the party are less than $300 per employee.
If you’re providing ‘minor exempt benefits’, no income tax deduction applies and no GST credits can be claimed.
The same tax implications may apply if you pay for travel, accommodation connected to the party, venue hire, and band/DJ/entertainers.
If FBT is payable, then an income tax deduction is allowed and GST credits can be claimed.
Christmas gifts and tax
Gifts of a minor and infrequent nature to your employees and associates may be exempt from FBT, if their value is under $300.
The value of the gift and the Christmas party can be considered separately in this case: each should be less than $300 in value.
If your employee/associate gift amounts to more than $300, FBT may be payable and a tax deduction and GST credit allowed.
For gifts of Christmas hampers, bottles of wine or gift vouchers to clients or suppliers, no FBT may be payable and a tax deduction and GST credits may be allowed.
Gifts of tickets to the theatre, movies, or sporting events to clients or suppliers may attract no FBT, and no income tax deduction or GST credits are claimable.
Where can you get more information on Christmas parties, gifts and tax?
Taxation Ruling 97/17 steps out the law on parties, with examples. Paragraphs 27 and 43-56 cover parties held at your business premises and paragraphs 57-62 are specific to parties held at a restaurant, function centre, or similar venue.
Taxation Determination 94/55 steps out the law in relation to gifts.
Don’t put off rewarding your employees with a Christmas party or gift due to the tax implications. Just be across how it affects you.
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