An Office Christmas party is good, but how do I claim a tax deduction for it?
While your business may not necessarily be planning an extravagant bash after the events of this year, a Christmas party may be on the menu for your hard-working employees.
Planning out your Christmas party in a COVID-safe manner with a little knowledge of the tax deductions you might be able to claim back can make the giving a little sweeter this year.
Office Christmas Party Tax Deductions
The Venue
You can take advantage of the $300 (including GST) minor benefit and exemption rule to hold a Christmas function. The Christmas function must be for your current employees and spouses. The exception can apply if the party is on the business premises during a business day. If your costs are below $300 per person, you will not incur FBT. However, you will not be able to claim tax deductions or GST credits.
However, providing benefits to your employees over $300 will incur fringe benefits tax (FBT). This means if the Christmas party that you hold costs over $300 per person (for the cost of food and drink consumed by employees and spouses) at your in-house party, you will incur and need to pay FBT on the expenses of your employee’s spouse or family members only.
When the party is at a restaurant or venue, you will not need to pay FBT if the costs remain under $300 as it is considered a minor benefit. If the costs rise to over $300, you will need to pay FBT for your employees, their spouses and family.
Transportation
You may also choose to provide your employees with transportation to the Christmas party. Taxis provided to an employee will attract FBT unless the travel is to or from the employee’s place of work. If the party is off-premises and you pay for your employee to travel by taxi to the venue. Only the first trip is FBT exempt, whereas a second trip to their home after the event is not.
The second trip may be exempt as a minor benefit if you adopt its meal entertainment on an actual basis.
You can also provide other types of transportation to the venue, such as buses. These costs will form a part of the total meal entertainment expenditure and will be subject to FBT. If you do not reach the threshold, it may fall under the minor benefits exemption.
What About Meal Entertainment?
If your Christmas party does not include recreation, you may choose the value of food, drink, associated accommodation or travel as ‘meal entertainment’. This allows staff to pay less tax by claiming meals and drinks consumed or provided at a social gathering.
To calculate the meal entertainment taxable value, you can use a 50:50 method, 12-week method, or actual method.
- 50:50 method – a 50:50 split where the taxable value is 50% of your total expenditure when providing entertainment to your employees, associates or clients during an FBT year.
- 12-week method – involves tracking each individual fringe benefit’s taxable value and is based on the percentage of meals and entertainment provided to employees as registered in a log for a 12-week representative period.
- Actual method – used when the exact number of attendees at the majority of meals and entertainment provided or the total value of all meals and entertainment during the FBT year is on the actual cost.
Want to know more about how you can make this merry time of the year more tax-friendly to your business? Consult with us about making your Christmas parties and employee benefits work for your tax. Let’s make sure that the office Christmas party tax deduction is the gift that keeps on giving.
