End-of-Year Tax Deductions: Christmas Parties & Gifts

With the festive season in full swing, so are office Christmas parties, but are you aware of the tax implications, especially the Fringe Benefits Tax (FBT), of your Christmas party and employee gifts?

Throughout this blog, we will deep-dive into Fringe Benefits Tax (FBT), and outline what expenses you can claim and which ones might land you in hot water. We will give you the insights to plan a fun Christmas party without inviting the tax man. 

What is Fringe Benefits Tax (FBT)

Fringe Benefits Tax (FBT) is a levy imposed on employers for specific perks given to their workers, their families, or other associates. This is different from income tax and is determined based on the taxable worth of the fringe benefit. Employers are tasked with self-evaluating their FBT obligation for the FBT year, which spans from April 1 to March 31. If an FBT liability exists, employers must lodge an FBT return and pay the tax owed.

FBT Exemptions on Christmas Parties and/or Gifts

Hosting a Christmas Party in The Office
Christmas parties are a popular way for businesses to celebrate the festive season with their employees and associates. However, it is important to understand the tax implications to ensure compliance with Fringe Benefits Tax (FBT) regulations.

A tax-friendly option for employers is to hold your Christmas party on a workday, on your business premises, and exclusively for current employees. By doing so, you’ll avoid paying Fringe Benefits Tax (FBT) on the cost of food and drink provided.

An on-site celebration not only simplifies planning but also keeps costs in check while ensuring full compliance with tax regulations. This approach is a smart, cost-effective solution for small businesses to enjoy festive cheer without the added burden of FBT.

However, if your business hosts a Christmas lunch on-site during a workday and extends the invitation to employees, their partners, and clients, it’s important to note that the cost of food, drinks, and taxi travel home should not exceed $125 per person.

Hosting a Christmas Party offsite
When a Christmas party is held off your business premises, you can spend up to $300 per person on food, drink, and entertainment without incurring Fringe Benefits Tax (FBT), and it must be deemed unreasonable to treat the expense as a fringe benefit. 

However, there’s a trade-off: these expenses are not tax-deductible, nor can you claim GST credits. While staying under the $300 limit avoids FBT, you’ll need to carefully manage your budget to keep costs in check.

This option provides flexibility for businesses planning more elaborate celebrations while staying within the FBT exemption limits.

Specifics to Consider

• Inviting Employee Partners: Expenses for employees’ partners, such as food, drink, and transportation, are similarly exempt from FBT under the minor benefits rule, provided the cost is less than $300 per person.
• Inviting Clients: Any benefits provided to clients are not subject to FBT. However, these expenses cannot be claimed as income tax deductions or GST credits.
• GST Considerations: While your Christmas party may qualify for FBT exemptions, you cannot claim income tax deductions or GST credits for expenses related to food, drink, or transportation for employees, their partners, or clients.

Giving Christmas Gifts

Suppose your company opts to present Christmas gifts to its staff, the Fringe Benefit Tax (FBT) is not applicable, provided the gift’s value is under $300 per individual. It would be deemed unreasonable to categorise the gift as a fringe benefit. This makes thoughtful gifting a tax-efficient way to spread holiday cheer.

Planning your business’s festive season activities with an eye on FBT compliance not only helps you avoid unexpected costs but also ensures your celebrations remain stress-free. Keeping detailed records of party and gift expenses is essential for meeting ATO requirements, but we understand that the complexities of tax compliance can dampen the holiday spirit.

At Rockwall Partners, we’re here to simplify the process. Let us handle the intricacies of Fringe Benefits Tax so you can focus on celebrating your team’s hard work and spreading holiday cheer. Contact us today to make your festive tax planning seamless and worry-free!