KNOWLEDGE

Christmas Party tax rules and deductions explained

‘Tis the season to be jolly! But nothing deflates Christmas spirit faster than a large tax bill…

Staff Christmas parties are a staple of the festive season, and business owners who don’t want to play the role of Scrooge are expected to get into the spirit.

But not all Christmas parties are the same – at least in terms of tax deductions, Fringe Benefit Tax, GST Credits and the never-ending maze of ATO regulations. On premises, offsite, employees only, employees plus partners… the various formats of Christmas parties all attract different tax rules.

“It’s really easy for small business to get caught in the tax minefield at Christmas time,” warns Steven Nicholson, CEO of Retinue Accounting. “All of us want to celebrate with our staff to acknowledge their hard work for another year. But Christmas parties in particular blur the line between business and entertainment expenses, and it can be really confusing for small businesses to understand the differences between legitimate deductions, tax obligations and personal expenses.

“There’s Fringe Benefit Tax to consider, alongside the Minor Benefits Exemption threshold. It’s endlessly confusing for business owners who just want to throw a party, so it’s important they get the right advice from a qualified professional.”

Let’s take a quick look at Christmas Party obligations so the ATO doesn’t put your business on its naughty list.

Christmas Parties – At Your Work Premises

Organising a Christmas party on a business day, hosted on your business premises exclusively for current employees means that the expenses food and drinks are exempt from Fringe Benefit Tax (FBT). However, this exemption is dependant upon attendance being restricted solely to current employees. Sorry partners, spouses and kids… you’re not invited to this party.

The rules change for a Christmas party on a business day at your workplace that does include the spouses or partners of your employees. It allows you to leverage the $300 (including GST) Minor Benefits Exemption. But keep in mind: to maintain Fringe Benefit Tax (FBT) exemption, costs per attendee must stay below $300. It’s essential to note that while this approach exempts you from FBT, it also means you also sacrifice the ability to claim GST credits or tax deductions.

When does FBT kick in?

As soon as food and drink exceeds more than $300 per head it goes beyond the Minor Benefits Exemption and FBT will apply.

Christmas Parties – Offsite

If you intend to host your team Christmas party offsite, whether at a restaurant or another venue, maintaining costs under $300 per person ensures it qualifies as a minor benefit, exempt from Fringe Benefit Tax (FBT). In the event that costs exceed $300 per head, FBT becomes applicable for all employees and their partners. Notably, if clients are also in attendance, FBT will not be incurred for them.

Staff Gifts

Some workplaces also like to give their staff a gift at Christmas time. If a Christmas gift or hamper distributed to employees remains below the $300 per person minor benefits threshold, it won’t be subject to FBT.

At A Glance

Christmas party held on the business premises on a working day
Scenario	Tax implications
Current employees only attend	No FBT as it is an exempt property benefit regardless of the cost No tax deduction No GST credits
Current employees and their associates (partners, spouses) attend at a cost of $180 per head	For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits For associates – No FBT as the cost is less than $300 per head (minor benefits exemption). No tax deduction and no GST credits
Current employees, their associates and some clients attend at a cost of $365 per head	For employees – No FBT as it is an exempt property benefit. No tax deduction and no GST credits For associates – FBT applies as the cost per head is equal to or more than $300. Claim tax deduction and GST credits For clients – no FBT, no income tax deduction and no GST credits

Christmas party held off the business premises
Scenario	Tax implications
Current employees only attend at a cost of $195 per person	No FBT as the cost is less than $300 per head (where the minor benefits exemption applies). No tax deduction and no GST credits
Current employees and their associates attend at a cost of $195 per person	No FBT as the cost is less than $300 per head (where the minor benefits exemption applies). No tax deduction and no GST credits
Current employees, their associates and clients attend at a cost of $365 per person	For employees & associates – FBT applies as the cost is more than $300.00. Claim tax deduction & GST credits For clients – no FBT, no income tax deduction and no GST credits
Current employees and their associates attend at a cost of $195 per person. Employees also provided with a hamper (non-entertainment gift) costing $150 per person *	Party Costs – No FBT (where the minor benefits exemption applies), no tax deduction and no GST credits Hamper Costs – No FBT (where the minor benefits exemption applies), claim tax deduction and GST credits
*Non-entertainment benefits provided to employees at the Christmas party, such as a hamper, are considered separately when applying the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.

Don’t let the ATO take the fun out of your festive season. Contact Retinue to get bookkeeping, accounting and payroll* support for your small business.

*Retinue’s payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.