The Staff Christmas Party – is it tax exempt?

At this time of year, employers like to throw parties for clients and employees. This is a great way of saying “thank you” to the team for all their hard work and to the clients for their continuous support.  It is also seen as a major exercise of client relationship management.

When planning your Christmas party, consider the following -

• How much it costs.

• Where and when it is held – a party held on business premises on a normal work day is treated differently to an event outside of work.

• Who is invited – is it just for employees, or are partners, clients or suppliers also invited?

Costs (such as food and drink) 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. These are referred to as exempt property benefits. The property benefit exemption is only available for employees, not associates.

Tax Deductibility:

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 are exempt from FBT (minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. The costs of entertaining clients are not subject to FBT and are not income tax deductible.

Exempt property benefits:

The costs (such as food and drink) 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. The property benefit exemption is only available for employees, not associates.

Fringe Benefit Tax:

Christmas Party held on the Business Premises (Employer implications)

• If only staff attend the party, then there will be no FBT implications as it is an exempt property benefit.
• If employees and their associates attend at a cost of (for example) $180pp, No FBT will be applicable for employees and associates due to the minor benefit exemption and exempt property benefit.
• If clients, associates and staff attend at a cost of $365pp then there will be no FBT for staff, however, associates would be subject to FBT (above the $300 minor benefit exemption). Clients have no FBT payable nor income tax deduction.

Christmas Party held off Business Premises (Employer implications)

• If only staff attend or they bring their associates at a cost of (for example) $195pp there would be no FBT implications, as the minor benefit exemption would apply.
• If clients, associates and staff attend at a cost of $365pp, a taxable fringe benefit would arise for employees. Associates would be subject to FBT and clients would have no FBT payable and no income tax deductible. 

Taxis to or from the party

Travel from work to a venue where a party is being held can be included in the minor benefit limit under the cost-per head. However, if employees are picked up by a taxi from their home to a party then the cost might attract FBT.