Media release

The application of fringe benefits tax (FBT means that it’s more tax effective to provide staff with non-entertainment gifts (see below) at Christmas rather than hosting a party.

This article examines some of the most common benefits provided at Christmas and outlines the various income tax, GST and FBT implications. It is assumed that the business is not electing to use either the 50–50 split method or the 12 week register method for calculating the taxable value of meal entertainment expenditure.

Christmas parties
Christmas parties constitute "entertainment benefits" and as such are subject to FBT unless specifically exempt, or the "minor benefits" exemption applies. A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.

(i) On-site christmas party
Holding the Christmas party on the business premises on a working day is usually the most tax effective. Expenses such as food and drink (including alcohol), are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. However, where employees' families (i.e. associates) also attend and the cost attributable to each associate is $300 or more inclusive of GST, there is FBT on the associates portion of food and drink, and a tax deduction and GST credit can be claimed on that portion. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.

Where the Christmas party is held on the business premises on a working day with only employees and clients attending, and only finger food or a light meal and no alcohol is provided, then the entire cost is tax deductible. There is no FBT and a GST credit can be claimed on the entire cost.

(ii) Off-site christmas party
Christmas parties held off the business premises are exempt from FBT where the cost for the employee and their associate is each less than $300 inclusive of GST but no tax deduction or GST credit can be claimed. The cost of clients attending the party is not subject to FBT, and no tax deduction or GST credit can be claimed on their portion of the cost.

Certain benefits provided to employees at the Christmas function are considered separately when applying the $300 minor benefits exemption. For example, a Christmas party is held at a restaurant costing $220 per head, and at the same time employees are provided with a Christmas hamper (considered a non-entertainment gift), costing $150. Although the total cost is more than $300, the provision of both benefits will usually be exempt from FBT under the minor benefits exemption.

For the Christmas party expenses, the business will not be entitled to claim either a tax deduction or a GST credit. However, a tax deduction and GST credit claim should be available on the cost of the hamper as this is not considered to be “entertainment”.

Inviting the family
Employees can make the Christmas party a family affair. Not only will it be a more inclusive experience, the ATO says the $300 minor benefits threshold applies per-attendee, not per-employee, which potentially means more FBT-free benefits.

Gifts

(i) Non-entertainment gifts
As noted above, non-entertainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include flowers, wine, perfumes, gift vouchers and hampers.

Given that the cost of hosting a Christmas party is not tax deductible (where the $300.00 minor benefit exemption applies), for a given dollar spend per employee it would be more tax-effective for the business to instead provide staff with these tax deductible non-entertainment benefits.

There is an interesting twist with providing staff with say beer or wine which is consumed at the workplace or at a work social gathering. In this situation, the expense is treated as non-tax deductible entertainment. However if the employee consumes the alcohol at home, the cost is tax deductible up to the $300.00 limit.

Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts provided they are not excessive or overly valuable.

(ii) Entertainment gifts
The provision of entertainment gifts has different tax implications (examples include theatre tickets, passes to attend a musical, live play, movie, tickets to a sporting event or providing a holiday). Where the cost for the employee and their associate is each less than $300 GST inclusive, FBT is not payable, and no tax deduction or GST credit can be claimed.

However, if the cost for the employee and their associate is each $300.00 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable. The cost of any entertainment gifts provided to clients is not subject to FBT, and no tax deduction or GST credit can be claimed.

It is important that businesses maintain separate accounts in the general ledger for recording the above transactions to ensure that the correct income tax, GST and FBT treatment is applied.

Taxi travel to and from the party
While taxi travel provided to employee would generally attract FBT there are two specific exceptions – when the trip either starts or ends at the employee’s place of work, or where the travel is required because of sickness or injury to the employee.

Where the employer pays for an employee’s taxi travel home from the Christmas party, and the party is held on the business premises, no FBT will apply and the cost of the taxi fare will be tax-deductible.

Where the party is held off the premises and the employer pays for a taxi to the venue, and then also pays for the employee to take a taxi home, only the first trip will be FBT exempt under the provision dealing with taxi travel.
 
In that scenario, if the employee does not regularly receive taxi travel paid for by the business, however, then the second trip might still be exempt as a minor benefit (assuming the cost is also less than $300). As the provision of meal entertainment is defined to include “…travel in connection with …the provision of entertainment by way of food and drink” then the business would be unable to claim a tax deduction for any taxi travel that is FBT exempt as a minor benefit.