Some tax considerations before hosting your brilliant Christmas party this year

The festive season is upon us and many of our clients will soon be hosting Christmas parties. As we plan for our own, we thought it would be timely to look at the tax consequences of staff parties and entertaining clients.

Christmas Party

If you’re planning on holding a party at your premises on a working day, the costs (food and drink) are an exempt property benefit to current employees for Fringe Benefits Tax purposes and, as such, there is no upper limit to what you can spend.

However, if you hold the party elsewhere – such as a restaurant or, for the bigger players, a function centre – then the party may still fall into the ATO’s minor benefits exemption provided the cost per employee is less than $300.

One should also consider associated benefits, e.g. providing a gift to employees in addition to the cost of the function. The ATO will consider each item separately when looking at the $300 minor and infrequent limit. So, you could provide a party of up to $300 per head as well as a gift to that limit also (i.e. $600 in total per employee).

Tax Deductibility of Christmas Party

Also bear in mind that, unless the party is subject to Fringe Benefits Tax, it is not tax deductible and you cannot claim GST on the costs.

Associates of Employees

When looking at the in-house function, remember that associates of employees (such as a spouse or partner) are not part of the exemption but, if the minor and infrequent rules are met, they could be exempt under those rules.

Clients

The costs of entertaining clients are not subject to Fringe Benefits Tax, however, they are also not deductible for income tax purposes and you cannot claim the GST.

Hopefully these rules don’t put a dampener on your festive season, they won’t for us! Please contact us if you have any questions in relation to the above.

Best wishes from the team at Allworths!