Different rules surrounding Christmas party expenses apply to different types of businesses. Meals, entertainment, gifts to employees and even the venue of the party are determinative factors in the tax exemption or deductibility of a work Christmas party. With all of these factors in mind, things can get complicated in the payroll processing department when you try to calculate the tax deductibility of your business’s work Christmas party.
However, the simplest answer as to whether the party is deductible comes straight from the Australian Taxation Office:
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT (fringe benefit tax).
In other words, Christmas party expenses that are exempt from FBT can’t be claimed as income tax deductions. So in this instance, it is more useful to ask whether the benefits (such as food, drinks and gifts) are subject to FBT than to discuss deductibility.
There are a few simple questions you can answer in order to determine whether your business’s work Christmas party expenses may be FBT-exempt benefits.
Is your business a tax-exempt organisation?
If not, there may be fringe benefit tax obligations you need to meet as a result of your work Christmas party.
Tax-exempt organisations (such as charities, clubs and local government bodies) attract completely different fringe benefit tax implications to income tax paying bodies. If your business is a tax-exempt body, read here for more information about Christmas party tax implications.
Did/will your work Christmas party take place on the business premises?
If the regular provisions (such as food and drinks) associated with the Christmas party are supplied on a working day on the business premises, then they are exempt from FBT.
But if the party is held off the business premises, then there will be a taxable fringe benefit for employees and other invitees unless the benefits are exempt minor benefits.
Were the Christmas party provisions exempt minor benefits?
Minor benefits are benefits provided to employees which are under the $300 minor benefits threshold. The threshold applies to each individual provision, not the total cost of the party. For example, a gift is one provision, food and drink is another. Minor benefits are likely to be FBT-exempt.
Were there non-employees at the party who were also provided food, drinks and entertainment?
Only expenses for provisions to current employees of the business may be exempt from FBT. The costs of food, drinks and other activities for non-employees will give rise to a taxable fringe benefit.
Were employees provided gifts?
Just like food and drinks, in the eyes of the ATO, a Christmas gift to an employee may be an exempt minor benefit if the gift is valued less than $300. This is measured separately to other minor benefits such as food and drinks.
At i3Group, we know that Christmas can be a stressful time for employers, which is why we offer fully managed payroll processing services to businesses Australia-wide. Contact Us today to learn how we can help your business set up a fully managed payroll service.