I run a business in Albury/Wodonga and am looking at organising a Christmas Party for my employees, as well as a $100 gift voucher for each employee. Can I claim these costs as a tax deduction?
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Generally speaking, “entertainment” provided to employees, such as a Christmas party, can only be claimed as a tax deduction if fringe benefits tax (FBT) has been paid on the cost of the party. FBT is defined as a tax on the non-cash benefits you provide to employees, their family or friends.
Fringe Benefits Tax includes a number of exemptions, the most common being the “minor and infrequent” exemption.
Under this exemption, where the non-cash benefits provided are less than $300 (including GST) per employee and are provided on an infrequent basis, such as an annual Christmas party, FBT will not be payable.
When considering the tax implications of a Christmas party, it is important to note that the $300 limit is calculated on a per head basis, i.e. including any family or friends of employees.
Another exemption from FBT exists where the Christmas party is held on your business premises, even if the cost per employee exceeds $300. However, this exemption doesn’t apply to friends or family of employees.
Finally, FBT will not apply to the cost for any clients or suppliers who may attend your Christmas party. The Fringe Benefits Tax only applies to benefits provided to employees.
In all of the above scenarios where FBT is not payable, no tax deduction will be available for the cost of the party.
However, it’s vital that you compare the tax liabilities you’re responsible for in these competing scenarios. FBT is payable at a rate of 47% on the value of the benefits provided, so in many cases, the more prudent financial decision is to forgo the tax deduction rather than pay the FBT and claim said deduction.
Fortunately, your Christmas gift to each employee has a separate $300 per employee limit.
Therefore, as the value of the gift vouchers are less than $300 (including GST) they should also be exempt from FBT. Importantly however, if the gift voucher is for something that is not “entertainment,” say a retail shopping voucher, that gift will be tax deductible.
If you would like more information on this topic or have another tax question e-mail me at tax.albury@crowehorwath.com.au.
