December 8, 2021

How to have a tax-deductible Christmas party

If you’re looking for an easy way to give your employees a gift this year, consider throwing them a Christmas party! The best part? Your end of year function could be tax-deductible. Here are some tips for throwing a festive and tax-deductible Christmas party without breaking the bank.

Venue

When organising a tax-deductible Christmas party for your employees and their spouses, take advantage of the $300 (including GST) minor benefit and exemption rule. To do so, the event must be held on the business’s premises and during a business day.

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You can avoid Fringe Benefit Tax (FBT) by keeping your costs below $300 per person. However, if you do stay under the $300 threshold you will not be able to claim tax deductions or GST credits.

If you do provide benefits over $300 per person at your in-house Christmas party, you will only need to pay FBT on the expenses of your employee’s spouse or family members.

If you host your work Christmas party at a restaurant or other venue, you won’t have to pay FBT if the expenses stay below $300 since it is considered a minor benefit. However, if your costs exceed $300, you’ll have to pay FBT for your employees, their spouses and family.

Transportation

You may also offer your employees transportation to the Christmas party. Unless the trip is to or from the employee’s workplace, taxis given to staff will attract FBT. If the party is not in-house and you pay for the employee to travel by taxi to the venue and to their home after, only the initial trip is FBT exempt.

You may also offer different means of transportation to the event, such as buses. These fees will be included in the overall meal entertainment expenditure and will be subject to FBT. If the threshold is not surpassed, it might fall under the minor benefits exemption.

Meal entertainment

While there is often some confusion around when entertaining is deductible, it certainly can be for your Christmas party. If there is no recreation at your Christmas party, you may claim food, drink, associated travel and accommodation as ‘meal entertainment’. This allows employees to pay less tax by claiming meals and beverages consumed in a restaurant/café or at a social gathering.

A 50:50 method, a 12-week method, or an actual method can be used to calculate the taxable value of meal entertainment.

  • 50:50 method – if you are providing entertainment to your employees, associates, or clients, there is a 50:50 split where the taxable value is 50% of your overall expenditure during a FBT year.
  • 12-week method – the taxable value of each individual fringe benefit is based on the percentage of meals and entertainment provided to employees and is tracked over a 12-week period.
  • Actual method – this is best used when the exact number of attendees at the majority of meals and entertainment is provided, or the total value of all meals and entertainment during the FBT year is based on actual expenditure.

In conclusion

At the end of the day, there are numerous ways to reduce your tax liability, avoid making common tax mistakes, and save money when hosting a Christmas party. With some careful planning ahead of time you can take advantage of minor benefits and exemptions and avoid FBT.

If you’re looking to make this holiday season more tax-friendly for your business then get in touch with us. At SGA, we can help you navigate the complex world of Australian taxation and ensure your Christmas party is both enjoyable and affordable. Contact us today for more information.

Filed Under: Accounting, General, Small Business Tax, Tax

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