Staff Christmas Parties – is all that festive cheer a tax deduction?

We wish there was a simple yes or no answer to this question given it’s common for employers to host a Christmas party for their team and spouses at this time of year.

But unfortunately the answer to the question of whether you can claim a deduction for this is…well, it depends.

If your staff Christmas party is considered to be “entertainment” then the expenses may not be a tax deduction.  “Entertainment” expenses are defined by the ATO to be:

  • Providing entertainment by way of food, drink or recreation
  • Providing accommodation or travel in connection with such entertainment, or
  • Paying or reimbursing expenses incurred in obtaining something covered by the above points.

In determining whether entertainment by way of food, drink or recreation is being provided, the ATO look at several factors  – Why, What, When and Where.

Factors to consider Likely to be entertainment Likely to NOT be entertainment
Why Why is the food or drink being provided? Part of a social situation where the purpose of the function is for employees to enjoy themselves Part of the employee completing their working day (morning tea provided at work, working lunch)
What What type of food or drink is being provided? A more elaborate meal, sometimes accompanied by drinks, is likely to be entertainment Simple refreshments like tea, coffee, sandwiches etc is unlikely to be entertainment
When When is the food or drink being provided? If it’s after-hours or on weekends and not during work time the food or drink is more likely to be entertainment If it’s provided during work time or overtime or when and employee is travelling away for work it is unlikely to be entertainment
Where Where is the food or drink being provided? Generally food or drink provided off-site at a venue like a restaurant or function room is more likely to be entertainment Food or drink provided at work on business premises is less likely to be entertainment

Some practical examples:

  • Entertainment – Christmas party at a local restaurant on a Saturday night – employees enjoyed a three course meal with drinks followed by a show at a local Theatre
  • Not entertainment – Christmas party morning tea during work hours at the employer’s premises – employees were treated to some baked goodies from the local bakery and then returned to work for the day

Are my expenses tax deductible?

In the case of example 2, this is not entertainment and the expenses will be a tax deduction to the employer.

However, example 1 is a little more tricky.  To work out if the expenses are a tax deduction, we need to welcome our friend, Fringe Benefits Tax (FBT) to the party.

The cost of providing entertainment (like the Christmas party at the restaurant) is a tax deduction, and you can claim GST on expenses, only if the expenses are subject to FBT.  This means you may need to be pay FBT and lodge an FBT return each year.

There are however some FBT exemptions which can apply.  If the expenses are a Minor Benefit then they will be exempt from FBT.  The cost of a Christmas party can be a minor benefit is the cost is less than $300 per employee and other conditions are satisfied.

However the kicker here is that the expenses are not tax deductible as a minor exempt benefit.

What does all this mean?  If your Christmas party falls with the realms of being entertainment it is not likely to be a tax deduction unless it is subject to FBT.

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