‘Tis the season for holiday festivities, and among the traditions many businesses uphold is hosting a Christmas party for their staff.

While spreading joy is a wonderful idea, it’s also crucial to be mindful of potential tax implications, particularly Fringe Benefits Tax (FBT).

FBT is paid by the employer on certain benefits provided to their employees, and Christmas parties are no exception. However, with strategic planning, businesses can minimise the impact of FBT.

Here are some top tips to consider:

1.   Hold the event on your business premises:

The costs associated with a Christmas party held on a normal business day at your place of business will be exempt from FBT.

However, this exemption only applies to current employees and does not include employees’ family members or other associates.

2.   Utilise the $300 minor benefits exemption:

If you would prefer to hold your Christmas Party away from the office, such as a restaurant, or you would like to include employees’ family members, then you may be able to avoid FBT by utilising the minor benefits exemption. A minor benefit is one that is provided on an “infrequent” or “irregular” basis and is not considered a reward for services. Generally, a Christmas party would meet these conditions, so provided the cost is less than $300 (including GST) per employee, it will be exempt from FBT.

The minor benefit exemption threshold applies to each benefit provided. So, if you are feeling generous, and would like to give a gift to everyone, the party and the gift are considered separately.

3.   Consider non-entertainment gifts:

As mentioned above, the provision of a gift to your employee is generally exempt from FBT if the value is less than $300 per employee. However, you cannot claim a tax deduction for benefits that are exempt from FTB. This is the same with GST credits.

The deductibility of a gift will depend on whether the gift is considered “entertainment” or “non-entertainment”.

Entertainment gifts can include:
– Tickets to sporting events or games
– Movie tickets
– Musical or theatre tickets

Non-entertainment gifts include:
– Flowers
– Food Hampers
– Wine
– Perfume/skincare/beauty products
– Vouchers

By strategically selecting your employees’ gifts, you can add a personal touch to the Christmas celebrations without triggering significant tax implications.

4.   Documenting exempt benefits:

Maintain records of expenses incurred during the Christmas party, and clearly identify any exempt benefits provided to employees. This documentation will be invaluable in case of an audit and ensures compliance with tax regulations.

Hosting a staff Christmas party is a wonderful way to celebrate the achievements of the year and strengthen team bonds. By implementing these tips, businesses can navigate the holiday season to ensure the festivities remain memorable without the unwelcome surprise of a hefty tax bill.

If you’d like some advise, or have some questions, call us on 0417 859 700 or email us at rebecca@kaleidoscopeaccounting.com.au.