It is important at this time of year to celebrate with your workmates and recognise the hard work done throughout the year. For most employers, this involves putting together some sort of work function for their staff. While most of focusing on providing the perfect event for their staff (as they should!), many do not understand the potential choices available and the tax implications of these choices.
If the Christmas party is held on your premises during working hours, then the entire cost of the party is FBT exempt. However this exemption only applies to employees – not their spouses.
An important figure to keep in mind is $300 per head. If the Christmas party costs comes out to less than $300 per head (this cost includes entertainment provided and costs of transport to and from the party) then the minor benefits exemption is met. In this circumstances, there is no FBT payable but the cost is not tax deductible and no GST can be claimed on any costs. This threshold applies to spouses who attend parties either on or off site and for employees who attend parties off site.
If the cost of the Christmas party is more than $300 per head, then FBT applies but the cost is tax deductible and GST can be claimed.
Any gifts issued can also have a separate $300 threshold applied and the same rules apply. The gift avoids having any FBT liability but it is not tax deductible and no GST can be claimed. Any gifts to clients however are tax deductible.
One final note regarding these tips and exemptions – they apply only if the employer uses the actual method for calculating the FBT on meal entertainment expenses. If the employer uses the 50/50 method, then half of the costs will be tax deductible, have FBT applicable and have GST claimed.