End-of-year parties are a great way to celebrate and to thank staff for all their hard work during the year. If you do host a party, make sure you know your obligations. We look here at the tax implications for hosting parties, and for giving gifts. If you are in doubt, please contact our office so that we can help you know what could be exempt, leaving you free to enjoy the festivities safe in the knowledge that you have things covered.
Tax obligations when hosting Christmas parties
From an income perspective you may be thinking in terms of how to allocate the costs of a Christmas party. The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to fringe benefits tax (FBT). Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. There is no separate FBT category for Christmas parties. Any fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.
Exempt benefits – minor benefits
The good news is that the provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
Employers should note the ATO’s view to the application of the minor benefits exemption to Christmas parties and gifts. According to the ATO, the minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Exempt property benefits
Other costs (such as those for food and drink) associated with Christmas parties are exempt from FBT provided they are incurred on a working day, on your business premises and any food and drink is consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party, if not otherwise exempt under the minor benefits exemption.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Health and safety at Christmas parties
While your staff may be “off the clock”, you will probably still be responsible for their health and safety. Here are some suggestions to help your workplace celebrate safely:
Remind staff, perhaps in an email before the event that while the party is a time to relax, it’s still a work function. You could gently remind staff to be careful if they choose to drink alcohol.
Make sure that any alcohol is served responsibly and that there’s enough food and non-alcoholic drinks available, too.
Help your staff get home safely after the event. You could organise a bus, pre-order taxis, or arrange for designated drivers.
Speak to us
The FBT year runs from 1 April to 31 March. You may not be ready to prepare your FBT until after 31 March, but you may be preparing accounts now in order to allocate the costs of the Christmas party. Speak to us for further information.