It’s Christmas season once again and businesses are busy throwing parties. One night of a Christmas party consists of several entertainment expenses and these expenses may be subject to fringe benefits tax (FBT), unless an exemption applies.
Expenses incurred in holding a Christmas party or other events for employees are not generally deductible if the minor benefit FBT exemption applies. If the business sometimes provides employees or their associates with food and drink, gifts or leisure activities, there may be a need to pay FBT as this may be classified as providing entertainment.
According to the Australian Taxation Office (ATO), “providing entertainment” means:
- providing entertainment by way of food, drink or recreation
- providing accommodation or travel in connection with such entertainment, or
- paying or reimbursing expenses incurred in obtaining something covered by the above points
It’s not only at Christmas parties that businesses provide entertainment for their employees. Some other examples are staff social functions, birthday parties, farewell functions, celebrations for achieving sales targets, business lunches with clients, product release functions, and golf days.
There are several things that must be considered in throwing a holiday event for the employees. For instance, Christmas parties will never be as fun without the food and some booze. But to consider food and drink provided to the employee as entertainment, one must look at various factors.
What do employers need to know to determine if their Christmas party expenses are considered “entertainment expenses”? Find out from Effective PD’s webinar. Subscribe to Effective PD at www.effectivepd.com.au. Effective PD offers an innovative way for busy accountants to be on top of their game with continuing professional development in a brief, flexible and easy way.
