Work Christmas Parties and Fringe Benefit Tax
What is Fringe Benefit Tax (FBT)?
FBT is a tax that applies wherever an employer provides a benefit to an employee other than their regular salary or wage, with employers required to pay FBT at a rate of 47% on the grossed up taxable value of these benefits.
The Australian Taxation Office (ATO) deems Christmas parties to be an ‘entertainment benefit’ because it’s a social situation with food and drink provided for the purpose of enjoyment.
FBT & Christmas parties held at work
Cost under $300 per head
There is no FBT implications for the employer, clients or employees partner if the event is held on a working day on your business, onsite at your place of business, if the cost of the food and drink must be less than $300 per head.
Please note that this less than $300 exemption is not applicable to entertainment benefits provided by income tax exempt entities. Please contact us for details if this applies to you.
Cost over $300 per head
If the cost per person exceeds $300 per head, there may still be no FBT implications for employees if held on a working day. A taxable fringe benefit arises for any partners or family members who join the party.
For clients invited to attend, there’s no FBT payable.
FBT & work Christmas parties held offsite
Cost under $300 per head
For Christmas functions held offsite, there is no FBT payable for employees and their family if the cost per head is under $300.
Cost over $300 per head
A taxable fringe benefit arises for employees and any family members attending the function if the cost is over $300 per head.
For clients invited to attend, there’s no FBT payable.
Christmas parties and other taxes
It’s also important to note that the cost of work Christmas parties is not tax deductible for the business unless the expenditure is subject to FBT.
Employers can only claim input tax credits for the GST paid on the component of the entertainment that is subject to FBT. This situation only occurs when the cost is more than $300 per person and the party is held off site from the business premises or if the 50/50 valuation method is utilised instead of the actual method.
You can learn more about FBT on our previous blog Minimising your FBT liability this festive season.
If you are unsure of the implications of your workplace Christmas functions, please consult with one of our tax specialists today on 03 5443 0344.
