Tax Tips: How should you treat staff Christmas parties in the lead up to the holidays?
There are two questions to consider:
- Is the cost of providing a staff Christmas party tax deductible?
- Is the Christmas party a fringe benefit and does fringe benefits tax (FBT) need to be paid on it?
If you are not a tax-exempt organisation and not using the 50:50 method for meal entertainment the following will broadly apply:
- If the Christmas event is hosted on your business premises and food and beverages are consumed by current employees, the cost of this catering will be exempt from FBT.
- If the celebration is held offsite, employees and associates (i.e. spouses) are attending and the total combined cost of the event for the employee and their associate is less than $300, it will also be exempt from FBT.
- Gifts are treated separately and therefore gifts, up to the value of $300, are also likely to be exempt. Note: cash gifts will be treated as taxable wages to the employee.
- If the expense is exempt from FBT then an income tax deduction will not be available, and the GST will not be claimable.
- If the cost of the Christmas party is over $300 per employee then FBT will be payable, and the expense would be income tax-deductible and the GST would be claimable.
- The expenses relating to clients, contractors etc. attending the Christmas party is not subject to FBT and is also not income tax-deductible and the GST cannot be claimed.
If you are providing fringe benefits to your employees and need assistance working out what the FBT implications are or need specific advice for your situation, please contact PKF.
By Sarah Lennon, PKF Adelaide