Christmas parties are an annual tradition for many businesses and are held to celebrate the year’s successes, recognise employees’ contributions and thank suppliers. The last thing on most employers’ minds is the tax implications of these activities. Unfortunately, the Australian Taxation Office has the view that these events and gifts may be considered ‘entertainment’ which can give rise to fringe benefits tax, tax deductibility and GST issues.
Key to these considerations is the definition of ‘entertainment’ expenses and the applicability of the minor benefits exemption. Expenses under $300 per employee that are minor and infrequent can be exempt from Fringe Benefits Tax. As Christmas party expenses usually occur once a year, most of the costs should fall within this exemption.
Treatment of Gifts
As a general rule, gifts are classified as entertainment in nature where the benefit from the gift usually expires in a short time and the entertainment is directly linked to the gift (eg. Movie tickets, tickets to a play, tickets to sports events etc). Some gifts, such as giving employees gift hampers or a bottle of wine, do not expire immediately (have a long term use) and are not classified as ‘entertainment’.
On or Offsite?
Employers also have the choice of providing a Christmas party onsite during work hours or hiring a function venue. If held during work hours, the food and drinks consumed by employees is usually exempt from fringe benefits tax (meaning that fringe benefits tax is not payable). In contrast, fringe benefits tax would be payable for a Christmas party held offsite where costs are greater than $300 per attendee as the costs are classified as ‘entertainment’ expenditure.
What are your options?
If you are incurring and claiming Christmas party expenses in your accounts you should ensure you record these amounts separately. Keep records and contact our office to discuss your options.
If you are unsure about your obligations or would like further information on any of the above then do not hesitate to contact us on 07 3512 8888.