Is your staff Christmas party a deductible business expense?

Advice on Fringe Benefits Tax and deductible business expenses should be provided by your accountant. 

Does Fringe Benefits Tax apply?

This depends on who attends the party and where it is held. Your FBT obligations will depend on:

• the amount you spend on each employee
• when and where your celebration is held
• who attends
• the vaule and type of gifts you give your employees

If you hold a Christmas party on your business premises, on a working day, and only for your current employees then you won’t pay FBT for the food and drink.

If you hold a Christmas party away from your business premises, or if the party includes associates of employees (such as their partners or children), you don’t pay FBT if the party is a minor benefit – that is, if the cost for each person is less than $300, and it would be considered unreasonable to treat it as a fringe benefit. 

If the party includes clients, you don’t pay FBT for the costs relating to the clients.

If the Christmas party is not subject to FBT, you can’t claim this as a business expense for tax deductible purposes.

As you can see, the rules around entertainment, parties and FBT are quite involved. Deciding on FBT and expense issues is best left to your accountant. Your bookkeeper should post the expenses for your staff Christmas party and staff gifts to their own expense account without GST included. You should keep all tax invoices and make detailed notes about who attended and provide this information to your accountant when it comes time to prepare your tax return.

The ATO has some great examples on entertainment and Christmas parties on their website https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/entertainment-related-fringe-benefits/common-entertainment-scenarios-for-business#ato-Christmaspartiesandgifts