The Christmas period is a time when everyone is relaxed, planning parties and anticipating wonderful holidays or quiet catch-ups over summer.
This is a great opportunity for businesses to have a little downtime and boost morale. Whether it is to celebrate a successful business year, to say thanks to all your employees who have worked hard or just taking time out to relax and socialise with your employees, it is a perfect time to plan a work party or function.
However, the costs of a Christmas party can quickly add up, when you include the food, beverages and the venue. By planning ahead, you can save money and at the same time keep an eye on your tax liabilities.
Depending on the finer details of your Christmas parties there may be a fringe benefits tax (FBT) liability, adding a significant cost to the event.
By making a few tweaks to your arrangements – it could mean changing the venue or the time, you can reduce your tax liability and save on the total cost of the event.
The Christmas Party
In the past, Christmas parties were a deductible expense, however, the food, drink and entertainment component of the expense is now classified as a non-deductible expense. In addition, there may also be FBT liabilities depending on certain elements of the party.
This is what an FBT exempt Christmas party looks like:
- It is held during normal working hours and
- It is held on work premises, a worksite or at a restaurant and
- Only employees and their associates are invited and
- The cost per head is under $300 including GST
Fulfil all these conditions and your Christmas party is FBT exempt.
Making the Christmas party FBT exempt and tax-deductible:
To be eligible to completely deduct your Christmas party expense and for your employees to not be liable for FBT, your Christmas party must meet these conditions –
- Only employees, volunteers, suppliers and customers are invited, and no employee associates are invited such as spouses, partners or children.
- It is held during business hours on a working day
- It is held on company premises
- No alcohol is provided
- Only a light meal or finger food is provided
Avoiding the FBT liability altogether:
An alternative way to host the Christmas party and to avoid the administrative headaches and extra costs of an FBT liability is for the business owner(s) to provide the benefits personally.
Some business owners pay for the Christmas party from their private funds and do not enter these transactions into their business accounts.
The giving of Christmas gifts is an alternative way to reward your employees and associates for their hard work over the year without the administrative and tax burden of a Christmas party.
Gifts that are considered ‘non-entertainment’ and under the value of $300 threshold including GST per staff member can be claimed as a tax deduction and a GST credit.
What are ‘non-entertainment’ gifts?
Eligible gifts include gift vouchers, books, hampers, flowers, homewares, beauty and health products, and wine.
‘Non-entertainment’ gifts can also be given to associates such as spouses, partners or children of the staff member and are accounted for in the same way.
‘Entertainment’ gifts are FBT eligible
Christmas gifts that are considered ‘entertainment’ and over the cost of $300 including GST each, will have FBT payable. Christmas gifts that are considered as entertaining or recreational include tickets to plays, the theatre, shows, sporting events, music concerts, movies or travel.
For ‘entertainments’ gifts under $300 including GST, there is no FBT liability, however, they cannot be claimed a tax deduction, nor a GST credit.
For further information on FBT, read our Big and Useful FBT Guide plus a free checklist to double check your FBT liabilities.
Here are ten helpful tips for setting up good accounting practices to help you relieve some of the accounting burden of running a business.
Still confused or just want to double check? Talk to a Penguin accountant today on +61 2 8298 5301, we will be happy to help you effectively plan your Christmas giving. Our outsourcing accounting services also include compliance, receivables/payables, payroll, bookkeeping, tax advice, credit control and reporting.
Disclaimer: The information here is of a general nature for Australian businesses and should not be your only source of information. Please consult your tax agent or ask a Penguin accountant, as each business’ end of financial year circumstances vary.
Oh, and don’t forget – Have yourself a very merry FBT exempt Christmas!