With the sun shining and the year drawing to a close, it’s time to look forward to celebrating with friends, family, and colleagues. As your advisor, we want to ensure you’re aware that the end-of-year celebrations you host for your employees could lead to unexpected tax consequences. This message is to provide you with the information you need to stay fully informed.

Christmas Parties

These are some common scenarios relating to work Christmas parties, and their tax consequences.

1. Party held on business premises

If the party is for current employees only, there is no fringe benefits tax (FBT) to pay. However, you also cannot claim an income tax deduction or GST credits.

If the party includes both current employees and their associates (such as spouses or partners), or some of your clients, the tax implications depend on the cost per person.

  • If the cost is less than $300 per head, there is no FBT, but you cannot claim an income tax deduction or GST credits.
  • If the cost is more than $300 per head, the portion of the cost attributable to your employees’ associates (e.g., their spouse/partner) will be subject to FBT. The amount subject to FBT is tax-deductible, and you can also claim GST credits for it. However, any costs not subject to FBT will not be deductible for income tax purposes, and no GST credits can be claimed for them.

2. Party held away from business premises

If the party costs less than $300 per head, then no FBT is payable. However, you also cannot claim a tax deduction and no GST credits are available to claim.

If the party costs more than $300 per head, then FBT is payable with respect to each employee that attends, as well as their spouse/partner. Again, if FBT is payable on an amount, then you can claim an income tax deduction as well as any GST credits.

If any clients of yours attend the party, and it costs more than $300 per head, then no FBT is payable, but also no income tax deduction or GST credits can be claimed.

However, if the party costs less than $300 per head, and at the party guests are provided a hamper (or other non-entertainment gift) worth less than $300, then the hamper is allowable as a tax deduction and GST credits can be claimed.

This is because the hamper is considered a gift which is separate from the party.

Christmas Gifts

If you give your employees a non-entertainment Christmas gift to show appreciation for their service, there is no FBT to pay, provided the gift is valued at less than $300. Examples of non-entertainment gifts include Christmas hampers, bottles of wine or spirits, gift vouchers, flowers, or other similar items.

CTTO: Wolter’s Kluwer

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