Festival season is upon us and no doubt many an employer’s attention is drawn to hosting an end-of-year party to celebrate the year’s achievements with staff. However, employers need to be aware of considerations such as tax obligations and health and safety regulations when it comes to hosting events such as a staff Christmas party.
End-of-year parties are a great way to celebrate and to thank staff for all their hard work during the year. If you choose to host a party, make sure you consider the tax obligations and health and safety regulations.
When planning your Christmas party, it’s important to consider any tax requirements. There is no separate fringe benefits tax (FBT) category for Christmas parties, and you may encounter many different circumstances in providing these events to your staff. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.
Exempt property benefits
Costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party, if not otherwise exempt under the minor benefits exemption.
TIP: The exemption applies even if the food is not prepared on your business premises. A working day is any 24-hour period during which work is usually performed by the employee.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
Employers should note the ATO’s view to the application of the minor benefits exemption to Christmas parties and gifts. According to the ATO, the minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
TIP: As the exemption potentially applies to a large number of small-value expenses incurred by the employer, it is important to have in place good record-keeping systems and procedures.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
Health and safety considerations
While your staff may be “off the clock”, you’ll probably still be responsible for their health and safety. Here are some suggestions to help your workplace celebrate safely:
- Send a friendly email to staff before the party reminding them that while the party is a time to relax, it’s still a work function. The email should also outline the rules, and remind staff to be careful if they choose to drink alcohol.
- If you’re serving alcohol at the party, make sure it’s served responsibly and that there’s enough food and non-alcoholic drinks available too.
- Help your staff get home safely after the event. You could organise a bus, pre-order taxis, or arrange for designated drivers.
For more information, please contact Commercial Associates for further information.