Is your Christmas party tax deductible?

It’s that time of year again - what to do for the Christmas party for the team and end-of-year celebrations.

Planning for a Christmas party that is both generous and affordable for your business can be tricky to balance.

Here are our top tips for a generous and tax-effective Christmas season.

If you are planning on hosting a Christmas party for the team, there are ways to celebrate the year and make it affordable for your business. The best way to avoid tax on your work Christmas party is to host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person.

Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT.  So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT.

If your work Christmas party is out of the office, we recommend keeping the cost of your celebrations below $300 per person if you want to avoid paying FBT.  The downside is that the business cannot claim deductions or GST credits for the expenses if there is no FBT payable in relation to the party.

If the party is held somewhere other than your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party, and taxi travel can potentially all be FBT-free. Just remember that the minor benefits exemption requires a number of factors to be considered, including the total value of associated benefits provided across the FBT year.

If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses.

If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. If your business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party.

If you are looking for financial advice or have any questions, please don’t hesitate to contact us and discuss them with our team here at Maher Group.