It’s that time of year again when many businesses start to wind down and celebrate the year that was. Each year at Dexterous we have a Christmas lunch with our team. It’s an event we all look forward to, as it’s a chance to spend time in a social setting, without the busyness of work humming away. We’re also generally a bit more relaxed, as we look forward to a few weeks off over our Christmas closure period.

Across Australian SME’s, providing Christmas parties and gifts to staff and clients is quite common, but many businesses make the mistake of thinking these costs are automatically tax deductible. It’s not that simple! These costs can either be not deductible for tax or subject to Fringe Benefits Tax, or neither. In this blog post, we chat through a range of different situations surrounding Christmas parties and gifts, and their associated tax implications.

(1) Christmas parties

Christmas parties attended by employees and their families/friends

A Christmas party is considered ‘entertainment’ and in many cases is subject to fringe benefits tax (FBT). FBT is an additional tax paid by employers for some benefits, such as entertainment, that they provide to their team. Where FBT is paid, in most cases you can also receive a tax deduction for the cost of the benefit.

Broadly speaking, Christmas parties are exempt from FBT if they are held during a business day, on work premises and only employees attend. They can also be exempt from FBT under the minor benefit exemption if associates of the employee (e.g. friends and family) attend, as long as the cost/head of the benefit is less than $300. For Christmas parties held off business premises, the benefit is exempt from FBT again under the minor benefit exemption only if the cost/head for the employee (and associates, if any attend) is less than $300. The following table steps through these situations in more detail.

SituationDoes FBT apply?
A Christmas party is held on a working day at your business premises and only employees attendThere is no FBT payable as this is an exempt benefit. There is also no tax deduction.
A Christmas party is held on a working day at your business premises and employees as well as their families attend. The cost of food and drinks is $100/headEmployees – there is no FBT payable as this is an exempt benefit and no tax deduction (see above)

Families/Friends of employees – there is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies and no tax deduction

A Christmas party is held at a local restaurant and only employees attend. The cost of food and drinks is $100/headThere is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction
A Christmas party is held at a local restaurant and only employees as well as their families attend. The cost of food and drinks is $100/headThere is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction.
A Christmas party is held at at an expensive restaurant in the city and the 7-course degustation menu with matching wines is ordered. Only employees attend the party. The cost of the 7-course degustation menu with matching wines is $350/headFBT is payable in respect of the employees and their families as the minor benefits exemption will not apply, given that the benefit is more than $300/head. The cost is an allowable tax deduction.
A Christmas party is held at at an expensive restaurant in the city and the 7-course degustation menu with matching wines is ordered. Employees and their families attend the party. The cost of the 7-course degustation menu with matching wines is $350/headFBT is payable in respect of the employees and their families as the minor benefits exemption will not apply, given that the benefit is more than $300/head. The cost is an allowable tax deduction.

What about clients?

In the above table, we looked at employees and their families/friends, but what about if we invite clients along? The rules change a bit. In all cases, regardless of the cost of the party, entertaining clients is not subject to FBT and the cost is not tax deductible. This means you can spend more or less than $300/head on your Christmas lunch, and for clients their lunch will be exempt from FBT and not tax deductible.

(2) Christmas Gifts

Is it a gift or entertainment

Gifting can be a little bit more tricky as it is important to consider whether the gift is actually a gift or if it is entertainment. A gift generally includes things like a chocolate box, gift voucher, pen or Christmas hamper. On the other hand, entertainment includes items such as movie tickets, concert tickets, airline tickets, theatre tickets and many more.

Gifts that are not entertainment

Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300 so the minor benefit exemption applies.

Where gifts are provided to clients, they are not subject to FBT and are tax deductible regardless of spend.

Gifts that are considered to be entertainment

Similar to above, these items provided to employees are subject to FBT and tax-deductible, unless the cost of the gift is less than $300 so the minor benefit exemption applies.

The difference arises, however, in terms of clients. Where these items are given to clients, they are not subject to FBT and not tax deductible, regardless of spend.

As can be seen, there are a few things to consider when planning your next Christmas party or Christmas gifts for your employees and clients. Where you choose to have your Christmas party, the cost/head of your Christmas party or the spend on a Christmas present or type of present given can often save you thousands of dollars in tax, so it’s important to be aware of the rules which apply.

Leave a Reply