Office Christmas Parties and Fringe Benefits Tax

By Andrew Erkins | 11 December 2014

It's the time of year for client gifts, work functions and Christmas parties in Australia - but before you splurge on a case of Dom Perignon on the company yacht, consider the Fringe Benefits Tax (FBT) implications under Australian tax law. The FBT year runs from 1 April to 31 March - not the standard financial year - so planning ahead matters.

If 'entertainment' isn't part of your vocabulary, then the most tax effective way to hold your Christmas function is to hold it on a working day in the business premises. In this scenario - if you only have current employees and clients attending, and only provide a light meal or finger food with no alcohol - then the entire cost is tax deductible. There is no Fringe Benefits Tax (Fringe Benefits Tax (FBT)) and a Goods and Services Tax (GST) credit can be claimed on the whole cost. Scrooge!

If you're less of a teetotaller and want to party a little harder, consider the following -

1. Meals involving alcohol are assumed to have a social context - you're providing entertainment - so Fringe Benefits Tax comes into effect.
   
   
2. Whether you have the party on the business premises, how much you spend per person, and the type of people that attend all affect FBT.
   
   For instance - you may be exempt from FBT if the benefit is a minor benefit'.
   Minor benefits are a benefit of less than $300' provided to an employee or their associate (for instance partners or family) that are not provided regularly.

Fringe Benefits Tax Cheat Sheet

If you have your party on premise during business hours -

• if you only invite current employees then no FBT applies to their costs (exempt property benefit)
• if you invite family and friends along - the minor benefits test (<$300 per person) applies
• if you invite clients - then no FBT applies to their costs

If you have your party at a restaurant or another location -

• the minor benefits test (<$300 per person) applies to both current employees and family & friends
• if you invite clients - then no FBT applies to their costs

And what about deductions? It's pretty simple - if you have to pay FBT on the expense, then you can deduct it. If you don't have to pay FBT, you can't deduct it. That includes the costs of entertaining clients, which aren't subject to FBT and are not income tax deductible.

If that isn't complicated enough - all of this doesn't apply if you are tax exempt, or you have adopted either the 50/50 split method or the 12 week register to calculate the taxable value of meal entertainment fringe benefits!

It's enough to have a drink over this holiday period :)