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Christmas Parties: on-premises vs off-premises

Work Christmas Party – beware the Tax Man!

There are no separate rules when it comes to Christmas parties – and if you provide events, food, drink and gifts for free to your associates, employees or their spouses – you may end up paying Fringe Benefits Tax (FBT) on it.  To be exempt from FBT:

Party held Offsite (not on your premises)

Food and Drink

  • You can go offsite for a party, but the cost per employee must be under $300 each…then it is exempt. This includes the benefit provided to spouse and associates.   So, if you have 10 employees, the party must cost less than $3,000 which includes the spouses and associates, so if everybody brings a spouse, and 20 people roll up, $3,000 is still the limit.

Gifts

  • If you give everybody a Christmas hamper at the Christmas party…this must fall within the $300 per employee limit to be exempt. So, if both the Christmas party and the gift are less than $300 per employee – no FBT.

Tax Deductions

  • So, here is the weird bit. If you manage to arrange all this and keep under the $300 limit per employee – you CANNOT claim the expense as a tax deduction.    The only bit you can claim as a tax deduction – is the bit that is subject to FBT.   This makes it unworkable, because the FBT tax rate is 47%…i.e. the top marginal tax rate – it isn’t worth it.

Party held on your premises

The implications for the employer in this situation would be as follows.
If… Then…
current employees only attend there are no FBT implications as it is held on your premises – and treated as an exempt property benefit.
current employees and their associates attend at a cost of $180 per head (ie. less than $300)
  • for employees – there are no FBT implications as it is held on your premises anyway.
  • for associates – there are no FBT implications as it is under $300 each.

 

current employees, their associates and some clients attend at a cost of $365 per head
  • for employees – there are no FBT implications as it is held on your premises.
  • for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
  • for clients – there is no FBT payable because it is held on your premises.  However, there is no income tax deduction, because it is exempt from FBT

(source:  ATO website)

Other Considerations

Avoid potential disasters by:

  1. Reminding everybody who gets an invite as to what your HR policies are, and your expectations
  2. Cater for everybody (not everybody eats what you eat, or drinks what you drink…or drink at all!). There is more than one way to celebrate the end of the year – think about it.
  3. Don’t enable binge drinking. It should be in your polices above – but also look at drink tokens, bar tabs, or even get them to pay for their drinks.  It is no coincident that the messiest Christmas parties tend to have an open bar.
  4. Give people transport options – so they don’t have to drive themselves home. Taxi companies offer discounts and booking vouchers, public transport usually steps up their services at this time of year.   So you have many ways of making sure they all get home safely after the event.
  5. Designate some “sober staff”. Usually some senior people in authority who can monitor the employees and implement strategies to subdue boozy behaviour by calling a taxi for them and removing them from the situation.
  6. Plan for the worst and hope for the best – you may have an incident happen, so the same “sober staff” should be the ones taking any details or getting a report of an incident. Get advice from a HR firm (we use employsure.com.au and that is where this checklist has come from) to put some policies and procedures together for incident reporting and management.

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