FBT & Christmas Parties From 1 April 2007
The following is a summary of the implications for a business which is not a tax-exempt organisation and does not use the 50-50 split method for meal entertainment. Refer to the links below for more details and for tax exempt bodies
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Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
The ATO has changed its view on the application of the minor benefits exemption to Christmas parties and gifts. The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Therefore, where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If the Christmas party and the gift are both less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Christmas party held on the business premises
The costs (such as food, drink and taxi fares directly home) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees only.
A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if the cost per head is $300 or more.
Christmas party held off the business premises
The costs associated with Christmas parties held away from your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party (including unbroken travel to and from home) is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that constitute entertainment but are exempt from FBT (e.g. minor benefits) cannot be claimed as an income tax deduction and no GST input tax credits can be recovered either.
Non - entertainment gifts, such as a bottle of wine, food hamper, are not subject to FBT if the minor benefit exemption applies and they are tax deductible and GST input tax credits can be claimed, because they are not entertainment. Entertainment gifts like movie tickets and sports events are subject to the FBT rules.
That portion of the cost of entertaining spent on clients is not subject to FBT and is not income tax deductible. If FBT applies to client entertainment it only applies to the employee portion of the costs.
For details of tax deductions available for the provision of non-entertainment food and drink, refer to IT 2675 below.