The lead up to Christmas can be exciting and your end of year celebrations are a chance to thank your employees for a job well done, and get everyone together to have some fun. However, when planning a Christmas party for your staff, you need to be careful that you don’t end up with an unwanted tax hangover.
Christmas parties are a benefit to employees so in the eyes of the tax office they can be considered a ‘Fringe Benefit’. If your Christmas party costs less than $300 per employee, there’s a good chance you will be exempt from Fringe Benefits Tax (FBT). Holding Christmas parties on the business premises on a working day is most tax effective. Drinks and food are exempt from FBT for employees with no dollar limit. While on the other end of the scale if you were to hold your party off premises on a working day before Christmas and provide meals, drinks, and entertainment at a cost of $300 or more per head, a taxable fringe benefit arises for employees and family.
For those businesses providing Christmas gifts remember it’s better to give your staff ‘non-entertainment’ gifts that are less than $300 as the amount is fully tax deductible and you are not required to pay any FBT. This includes things like a Christmas hamper, bottle of wine or gift vouchers. For those more generous employers, if the ‘non-entertainment’ gift for employees is more than $300, it is still tax deductible and GST credit can still be claimed, but FBT is made payable at a rate of 46.5%.
Christmas is a time of giving and we encourage employers to reward employees during the festive season, but we suggest keeping it simple and meaningful. If you’re not sure about the tax implications of your gifts and parties, seek advice from your accountant before your splurge. Remember – be wary while you’re being merry!
Disclaimer – Information provided in this article has been sourced from Australian Tax Office and is general in nature. In preparing this information BMO has not taken into account any particular person’s objectives, financial situation or needs. We recommend you obtain financial advice specific to your situation before making any financial decisions or investments.