Christmas Parties and FBT

Christmas Party

With the festive season nearly here, many workplaces will be putting on a Christmas party or the like for their employees, and who doesn’t like a meal and drink on the boss!

However, businesses must be mindful of scenarios that apply to business of how Fringe Benefits Tax (FBT) applies. There are also considerations such as Pay as You Go Withholding (PAYG W) and superannuation, that may apply to Christmas parties, bonuses and gifts to staff.

Which Christmas Parties are we talking about? 

Every year, businesses go to great lengths to impress their staff, clients, and families by hosting a party some of which include:

  • Restaurants
  • In house party i.e. on work premise
  • Hire venue with catering
  • Social Event i.e. laser tag, going to the cinema’s

Are Christmas Parties Tax Deductible?

Yes, however most Christmas parties end up being non-deductible due to either including Alcohol or being off business premise. Additionally, where Christmas parties are held off business premise can also attract FBT.

When are Christmas Parties Tax Deductible? 

Generally, if a party is held on business premises, on a workday, and no Alcohol is provided, the party would be tax deductible. Where the business is registered for GST, they would also be entitled to claim the GST back on the cost of the Christmas party.

Can Christmas Parties be deductible if they are held off premise? 

The event would not be tax deductible, however if the business was liable and had paid Fringe Benefits Tax on the event, the event would be deductible in full.

Which food and drink can be deductible at the Christmas Party? 

Any type of ‘light refreshment’ which is not considered a ‘meal’ can be claim as tax deductible and not subject to Fringe Benefits Tax.

Some examples of light refreshments:

  • Finger food (pizza, chips)
  • Sandwiches, biscuits, cakes
  • Tea, Coffee, Soft drink but no Alcohol

What is Minor Benefit Exemption for FBT? 

The Minor Benefits Exemption allows a business to avoid paying FBT on a benefit provided to your employee or associate such as an off-premises Christmas Party. where the benefit given meets certain criteria. A minor benefit is one that:

Where a benefit provided meets the following criteria, the benefit will be exempt from FBT.

  • Provided to staff or their associates, for example their spouse or partner
  • Provided on an “infrequent” or “irregular” basis
  • Not considered a reward for services, and
  • Costs less than $300 “per benefit” inclusive of GST

Are Christmas Gifts to Staff Tax Deductible? 

Unfortunately, gifts are non-tax deductible to staff. Gifts are also subject to Fringe Benefits Tax as they are a non-cash benefit provided to your staff.

How about if I provide a gift of cash to my staff?

Many small businesses generously provide gifts of cash during the festive season. However, gifts of cash are treated as normal salary or wages, PAYG W is triggered and the amount is also subject to the superannuation guarantee. So, while the gift of cash may be $500, the actual cost may be up to 20-40%+ higher as the employer would also have to pay withholding tax and superannuation guarantee.

Christmas Bonuses

If your business is considering rewarding your employees with a bonus for their contribution there are several things to consider, particularly from a tax perspective.

How much to pay bonus? 

Paying your employees a Christmas cash bonus is taxed as wages or salary paid.  Also, the bonus will be subject to PAYG W and superannuation guarantee. From your employees’ perspective, the bonus may affect their tax position or eligibility for things like government benefits.

Do I need to pay super guarantee for bonus? 

Superannuation guarantee will need to be paid on the gross bonus you pay your employees. This means that you may have to alter the total bonus you pay to your employees, to ensure that they receive a net amount for their bonus.

Do you need help with Tax Advice this Christmas?

If so, please do not hesitate to contact our office on 1300 620 345.

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