FBT on Office Christmas Party - Top 11 Issues for Employers

It’s easy to forget about the tax consequences of last December’s Christmas party, until March rolls around and the FBT (Fringe Benefits Tax) return is due.

Whether you hosted a festive lunch on-site or booked a venue with drinks and entertainment, the implications for FBT and income tax deductibility can vary widely depending on the nature, cost, and recipients of the benefit.

Here are 11 key points every employer needs to understand:

1. On-Site Parties Can Be FBT Exempt

If your Christmas party was:

• Held on a working day

• Provided on your business premises

• Attended by current employees only (no family or associates)

Then the cost may be fully exempt from FBT.

2. Associates of Employees Can Trigger FBT

If employees brought spouses or other associates, the exemption no longer applies to those individuals. However, the minor benefits exemption may apply in some cases.

3. Offsite Parties Are Generally Not Exempt

Christmas parties held away from the business premises are subject to FBT, unless they meet the conditions of the minor benefits exemption.

4. What is the Minor Benefits Exemption?

The $300 threshold per benefit, per person, applies where:

• The benefit is provided infrequently and irregularly, and

• The value of each benefit (e.g. meal, entertainment, or gift) is less than $300 including GST

This means both the party and the gift can qualify separately if each costs under $300.

5. Gifts vs Meals: Different Rules Apply

If you give gifts (like a hamper or voucher) on the same day as the party, they are treated as separate benefits. The $300 limit applies individually to:

• The cost of the party per employee

• The cost of any gifts per employee

6. Gifts Consumed On-Premises Are Not Deductible

If an employee receives and consumes a gift (e.g. wine, food) on your premises, it may be exempt from FBT, but no tax deduction is allowed.

7. If FBT Applies, a Tax Deduction Is Allowed

Where a benefit is subject to FBT, the associated cost can be claimed as a tax deduction. However, if it's FBT-exempt, no deduction is available.

8. Entertainment for Clients Is Not Deductible

Entertaining clients, such as shouting them drinks or a meal at your Christmas event, is not subject to FBT—but the cost is not tax deductible.

9. Gifts for Clients or Suppliers May Be Deductible

Gifts given to clients or suppliers aren’t covered by the FBT regime, and can generally be deducted—provided they are not excessive, frequent, or lavish.

10. Minor Benefit Threshold Increased in 2006

Before 2006, the minor benefit threshold was just $100. It is now $300 per benefit, which allows for more flexibility in planning modest end-of-year events and gifts.

11. Alternatively, You Can Use the 50/50 Method

Instead of tracking individual exemptions, you can opt to apply the 50/50 split method. This treats 50% of all entertainment costs (regardless of recipient) as FBT-subject and deductible. The other 50% is not deductible.

Plan Ahead for Next Christmas

The FBT rules can be a trap for the unwary. Planning ahead—such as setting a budget per employee, keeping detailed records, and understanding the exemptions—can save you from a nasty FBT liability or missed deduction.

Need help reviewing last year’s party costs or planning for this year?

Get in touch with Dolman Bateman for expert FBT advice.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.