“Christmas is coming up, so you better get this party started”. So says Pink (sort of) but I wonder if she has given much thought to the FBT and tax consequences?

Well she should, because Christmas parties are not cheap and they are almost never tax-free. If you’re pumpin’ up the volume, breaking down to the beat, cruising through the west side or just checkin’ the scene, then you’re having fun. And you cannot have fun and get tax relief.

I said “almost never tax-free” because there are a few options that provide maximum tax benefit – the much-anticipated in-house working Christmas lunch; the please bring-a-plate annual festive picnic; and the please pay-for-yourself restaurant celebration. These are not very rock and roll but are a favourite of stingy employers everywhere.  

But I know you are a hip, bounteous, business owner – perhaps making your connection as you enter the room, everybody chilling as you set up the groove –  and you’ll be throwing a festive function that knows no bounds.

Well, except that you’ll want to keep the cost to $300 per head because this is the limit where no Fringe Benefits Tax is payable. Which saves one tax (and an expensive one at that), but incurs another, because entertainment costs are not tax-deductible or GST refundable.

At least the $300 threshold applies separately to invited spouses, taxi travel and Christmas gifts, so don’t skimp on a safe trip home for your team.

What about if you really go all out, sending out the message to all of your friends, looking flashy in your Mercedes Benz, and you kick well over the $300 limit per person? Then you will pay FBT, but you can also claim a tax deduction and GST credits for the cost of the event.

Remember that cash bonuses paid to staff at Christmas (or any time) are not gifts. The ATO considers this to be normal income to the employee, even if it was intended as a gift. You’ll have to withhold PAYG tax and likely pay employee super (and like all wages, you will get a tax deduction).

Gifts made to clients or customers receive better tax treatment because FBT doesn’t apply. Provided the gift is for the purpose of building the relationship and leading to further income, then the cost is tax deductible, except if it is considered entertainment. So, a retail gift voucher will be tax deductible, but a night club gift voucher (is there such a thing?), where they’re pumping up the volume with a brand-new beat, will not. Ah, the absurdity of Australian tax. 

Let’s get this party started!

by MARK DOUGLAS
FCPA
Managing Partner of Francis A Jones
www.faj.com.au