One of the most common questions we are asked at this time of year is around tax and the office Christmas party. Let’s review the ATO rules around this, especially in regard to Fringe Benefits Tax.
Entertainment
The first point to remember is that there is nothing special about Christmas as far as the tax office is concerned. These events are usually classed as ‘entertainment’. Fringe Benefits Tax (FBT) will apply to any entertaining of employees or associates outside of the office (i.e., at a restaurant) if the cost per person is more than $300 each. However, if you plan to hold a function for your employees only at your office premises, on a weekday, there is no FBT applied — but the costs are not tax deductable.
If the costs of your off-site Christmas entertaining are more than $300 for food and drink per employee, FBT will be applied, and the costs therefore become an allowable tax deduction.
If you are a club, charity, or government department that is considered by the ATO to be tax exempt, there is no special category of FBT because you do not pay income tax. Therefore, if you provide your staff with a Christmas party (either on-site or off-site) it will be considered a tax-exempt body entertainment fringe benefit.
Christmas presents
Many businesses like to provide their employees with end of year thank-you gifts at Christmas. This is not considered entertainment as long as it does not include things like restaurant meals, vouchers for holidays or concerts or memberships to sporting events. As long as you keep the cost of the gift to less than $300 per employee and stick to things like hampers, gift vouchers, bottles of wine or flowers the business will be able to claim a tax deduction.
Want to know more about FBT or tax status of entertainment for your business? Contact your dmca adviser who can provide more details and explain the fine print in relation to your business.