If Santa was an Australian Tax Resident3 December 2021
The Top Christmas Tax Questions7 December 2021
While your business may not necessarily be planning an extravagant bash after the events of this year, a Christmas party may be on the menu for your hard-working employees.
Planning out your Christmas party in a COVID-safe manner with a little knowledge of the tax deductions you might be able to claim back can make the giving a little sweeter this year.
You can take advantage of the $300 (including GST) minor benefit and exemption rule to hold a Christmas function for your current employees and their spouses. To do so, the party would need to be held on the premises of the business, and during a business day. If your costs are below $300 per person, FBT will not be incurred but you will not be able to claim tax deductions or GST credits.
However, if you provide benefits to your employees over $300, it will incur fringe benefits tax (FBT). This means if the Christmas party that you hold is priced at over $300 per person (for the cost of food and drink consumed by employees and spouses) at your in-house party, you will incur and need to pay FBT on the expenses of your employee’s spouse or family members only.
If the party is being held at a restaurant or venue, you will not need to pay FBT if the costs remain under $300 as it is considered a minor benefit. If the costs rise to over $300, you will need to pay FBT for your employees, their spouses and their family.
You may also choose to provide your employees with transportation to the Christmas party. Taxis provided to an employee will attract FBT unless the travel is to or from the employee’s place of work. If the party is held off-premises and you pay for your employee to travel by taxi to the venue and to their home after the event, only the first trip is FBT exempt.
The second trip may be exempt under the minor benefits exemption if you adopt its meal entertainment on an actual basis.
You can also provide other types of transportation to the venue, such as buses. These costs will form a part of the total meal entertainment expenditure and will be subject to FBT. If the threshold is not breached, then it may fall under the minor benefits exemption.
What About Meal Entertainment?
If your Christmas party does not include recreation, you may choose the value of food, drink, associated accommodation or travel as ‘meal entertainment’. This allows staff to pay less tax by claiming meals and drinks consumed in a restaurant/cafe or provided at a social gathering.
The taxable value of the meal entertainment can be made using a 50:50 method, 12-week method or actual method.
- 50:50 method – a 50:50 split where the taxable value is 50% of your total expenditure when providing entertainment to your employees, associates or clients during an FBT year.
- 12-week method – involves tracking the taxable value of each individual fringe benefit, and is based on the percentage of meals and entertainment provided to employees as registered in a log for a 12-week representative period.
- Actual method – best used when the exact number of attendees at the majority of meals and entertainment provided or the total value of all meals and entertainment during the FBT year based on actual expenditure.
Want to know more about how you can make this merry time of the year more tax-friendly to your business? Consult with us about how we can make your Christmas parties and employee benefits work for your tax.