Christmas parties and Fringe Benefits – Celebrating with tax in mind

Christmas is traditionally a time of giving. As an employer, you may want to reward your staff and show gratitude towards your customers/suppliers for their loyalty.

You may encounter many different circumstances when providing these gifts/benefits to your staff or dealing with client’s expenditures.

The following explanations may help you determine whether there are tax implications arising from a Christmas party.

Benefits provided to Employees and their Associates/Spouses

  • Exempt benefits – minor benefits

The provision of a Christmas party to employees or their associates(spouses) may be a minor benefit and exempt from fringe benefit, if the cost of the party is less than $300 per head and certain conditions are met. The threshold of less than $300 applies to each benefit provided, not to the total value.

  • Gifts provided to employees/associates at a Christmas party

Where a Christmas gift is provided to an employee at a Christmas party, each benefit needs to be considered separately. If both the Christmas party and the gift are each less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

  • Exempt property benefits

The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. The property benefits exemption is only available for employees, not associates, unless it is a minor benefit.

  • Tax deductibility and GST of a Christmas party

The cost of providing a Christmas party is entertainment and so is income tax deductible only to the extent that it is subject to FBT. Therefore, any party costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction, and no GST is claimable.

  • Calculation of fringe benefits

If fringe benefits tax is applicable, there are two methods to calculate, Actual Method and the alternative 50/50 Method. Under Actual Method, an employer pays FBT on all taxable meal entertainment provided to employees and their associates. Under the alternative 50/50 Method, the employer pays FBT on only 50% of all taxable meal entertainment provided to employees, associates AND third parties, such as clients/suppliers/customers, irrespective of the costs. A calculation is to be made to determine the best tax outcome for choosing an appropriate method.

Benefits provided to Clients/Suppliers/Customers

  • Tax deductibility and GST of a Christmas party to third parties

When gifting to clients/suppliers/customers, no FBT is payable irrespective of the type of gifts and costs. However, where the benefit has entertainment in nature, no GST or tax deduction can be claimed. Therefore, from a tax standpoint, it’s better to provide non-entertainment gifts to those third parties, such as Christmas hampers, a bottles of wine, etc to enjoy a tax deduction and GST credits.

If you would like to know more about how we can maximize your fringe benefits legally, please contact Beyond Taxation today on 1300 552 993 or email

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