Implications for taxpaying body
If you are not a tax-exempt organisation and do not use either the 50-50 split method or the 12-week register method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.
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. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
Exempt benefits - minor benefits
A Christmas party may be a minor benefit and exempt if the cost of the party is less than $100 per employee and certain conditions are met. The cost per employee includes the cost for any of their associates attending the party.
Gifts provided to employees at a Christmas party
All benefits associated with the Christmas function should be grouped to determine whether the total value meets or exceeds the $100 minor benefits threshold. For example, the cost of gifts such as bottles of wine and hampers given at the function would be included in the total cost of the party.
Tax deductibility of a Christmas party
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 (that is, exempt 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.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt.
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
© Copyright ATO, 25 November 2004. http://ato.gov.au