With the Festive Season upon us, many of our clients are organising Christmas parties for their team members or customers, and want to ensure they don’t end up with an uninvited visitor to their Christmas celebrations – the Grinch (or tax man!). While trying not to reduce the excitement of your Christmas festivities, we thought we would share some information in relation to the tax implications of having a celebration or giving a gift.

Many employers do not realise their Christmas party and Christmas gifts will usually be seen as entertainment by the ATO, which could then lead to the celebration being caught under the Fringe Benefits Tax (FBT) regime. In order to avoid this, there are certain limits you can put on the party to ensure that while employees are still enjoying themselves, you don’t end up paying for the party twice.

The tax implications of your Christmas party can vary depending on where the party is held, the amount paid per person and whether the person is an employee, associate (partner/family) or a client. The table below explains the different treatments:

As an example from the table above, if you were to hold your Christmas party for your employees and their associates with a total of 12 people at the local tavern, you would need to ensure that the total cost of the party doesn’t exceed $3,600 (GST inclusive), otherwise you will face Fringe Benefits Tax. In saying this, the entire party will also not be tax deductible and you will not be able to claim GST on the expenses.

Christmas gifts may also fall under the same entertainment regime as the Christmas party, depending on the enjoyment that your employees or clients will receive from the gift. The table below explains the different treatments:

You will notice above that the difference in treatment depends on whether the gift is viewed as entertainment. The definition of entertainment is not definite, however you should be able to explain how a gift is not entertainment. For example, gifts such as flowers, gift vouchers and perfumes are not seen as entertainment, whereas tickets to a movie, passes to a theme park or a voucher for dinner will be seen as entertainment.

All of the information above is relative solely to an employer who uses the Actual Method of calculation for FBT purposes. If you use a different method to calculate your entertainment expenses, a different set of calculations will be necessary.

We hope that this article helps to clarify any questions you may have in relation to Christmas expenses, however if you have any further queries or require additional information, please contact your trusted adviser and - most importantly - enjoy your Christmas festivities!