It’s that time of year again – the office Christmas party! A time to celebrate your wins, reflect on your losses, and get excited for the summer holidays ahead.
But before you pop the champagne, let’s take a look at the tax consequences of your work Christmas party:
FBT Implications
FBT Implications
Less than $300 per person (minor benefits exemption):
If the cost per employee is less than $300 (including GST), the minor benefits exemption applies.
No FBT is payable if the party is considered infrequent and irregular (e.g., not part of a routine benefit).
The $300 threshold applies per person, per benefit. If family members attend, the minor benefits exemption applies separately to each attendee.
Note: Entertainment benefits provided to associates (e.g., family members of employees) can also be exempt under the minor benefits rule, provided the cost is under $300 per person.
Over $300 per person:
FBT applies to the total cost, including any amounts for associates attending.
The total cost is subject to FBT, and the employer must calculate and report this.
GST Implications
GST Implications
Less than $300 per person (exempt from FBT):
If the benefit is exempt from FBT due to the minor benefits rule, no GST credit can be claimed by the employer on the costs of the party. This is because entertainment expenses that are FBT-exempt are considered non-deductible under GST rules.
Over $300 per person (FBT applies):
If FBT applies, the employer can claim GST credits on the costs of the party because it is treated as a fringe benefit subject to GST-inclusive expenses.
Income Tax Deductibility
Income Tax Deductibility
Less than $300 per person (minor benefits exemption):
The cost of the party is classified as entertainment and is generally non-deductible for income tax purposes, even if it qualifies as a minor benefit exempt from FBT.
Over $300 per person (FBT applies):
If FBT applies, the cost becomes income tax-deductible because it is subject to FBT. This is consistent with the principle that benefits incurring FBT are deductible.
Relevant Legislation and ATO Guidance
Relevant Legislation and ATO Guidance
1. Fringe Benefits Tax (FBT):
Minor Benefits Exemption:
Legislation: Section 58P of the Fringe Benefits Tax Assessment Act 1986 outlines the minor benefits exemption, which may apply to benefits provided to employees that are less than $300 and meet certain criteria.
2. Income Tax Deductibility:
Non-Deductibility of Entertainment Expenses:
Legislation: Section 32-5 of the Income Tax Assessment Act 1997 specifies that expenses related to providing entertainment are generally not deductible.
3. Goods and Services Tax (GST):
GST and Entertainment Expenses:
Legislation: The GST rule that disallows input tax credits for FBT-exempt entertainment is contained in Section 69-5 of the GST Act 1999.
Alternatives
Alternatives
If you’re looking for tax-deductible alternatives to a Christmas party, here are a couple of options to consider:
Gifts: Non-entertainment gifts (like gift vouchers, hampers, wine, or flowers) can be tax-deductible and eligible for GST credits, provided they’re under $300 and meet the minor benefits exemption.
Bonuses: Cash bonuses are treated as part of your employees’ regular pay, taxed at their marginal tax rate. While taxable to employees, they are fully deductible for the business as salary and wages.
These options can spread some festive cheer without triggering FBT.
Summary
Summary
In summary, if your Christmas party costs less than $300 and is minor and infrequent, you can get an exemption for FBT, however you cannot claim a tax deduction or GST deduction.
If you do pay FBT, get a deduction for both income tax and GST, but you have to go through the FBT return shemozzle. More to come on how to do this.