Christmas Parties and Employee Gifts

The Australian Taxation Office (ATO) have released a reasonable paper on the taxation implications of work Christmas parties and Employee gifts.

Extracts of the paper include:-

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.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.

Christmas party held on the business premises

A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.

Example A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine. The implications for the employer in this situation would be as follows.
If…	Then…
current employees only attend	there are no FBT implications as it is an exempt property benefit.
current employees and their associates attend at a cost of $180 per head	for employees - there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply* for associates - there are no FBT implications as the minor benefit exemption applies.*
current employees, their associates and some clients attend at a cost of $365 per head	for employees - there are no FBT implications as it is an exempt property benefit for associates - a taxable fringe benefit will arise as the value is equal to or more than $300 for clients - there is no FBT payable and no income tax deduction.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Christmas party held off business premises

The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.

Example Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. The implications for the employer in this situation would be as follows.
If…	Then…
current employees only attend at a cost of $195 per head	there are no FBT implications as the minor benefits exemption applies.*
current employees and their associates attend at a cost of $180 per head	there are no FBT implications as the minor benefits exemption applies.*
current employees, their associates and clients attend at a cost of $365 per head	for employees - a taxable fringe benefit will arise for associates - a taxable fringe benefit will arise, and for clients - there is no FBT payable and the cost of providing the entertainment is not income tax deductible.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Source: ATO Website