With the festive season in full swing, Australian employers around the country are hosting their end of year Christmas parties. It's important that employers consider the tax consequences involved in hosting a Christmas party. The Australian Taxation Office deem Christmas parties as 'entertainment' and determining the tax treatment of entertainment can be problematic. The following information is by no means tax or financial advice. This article simply provides a generic overview of the basic Fringe Benefit Tax issues that employers should consider before hosting their staff Christmas party.

Traditionally, employers can choose between two methods to determine the tax consequence of hosting a Christmas party. 

Option 1 - The Actual Method

Firstly, the tax consequences of hosting a Christmas party alter based on the location of the party, with the legislation differing between parties held on the employer's business premises or external Christmas parties. 

• If the Christmas party is on the business premises during a weekday, no Fringe Benefit Tax is payable. Importantly, any costs incurred are not deductible for income tax purposes. Alternatively, if the Christmas party is held at a venue employers need to determine if the cost of the benefit provided to each employee is greater or less than $300.00. Generally speaking, if the costs amount to less than $300.00, no Fringe Benefit Tax is payable but the expenses incurred are not eligible deductions for income tax purposes. 
• However, if the costs per participant (employees & family members) amount to $300.00 or more, Fringe Benefit Tax applies and subsequently an income tax deduction is allowable for the Christmas party costs incurred. 

Where food or drink is provided to clients and or suppliers, no income tax deduction is allowable and no Fringe Benefits Tax is payable. 

Option 2 - The 50/50 Method

Under this method, 50% of the total Christmas party expense will be subject to Fringe Benefits Tax and is tax deductible. 

If you would like more information on the tax consequences of your Christmas party or would like to discuss in more detail any of the above including the GST considerations necessary, please contact your GMD Accounting team member.