A lack of consideration of the tax effectiveness of your Christmas party could mean an unexpected FBT cost to your organisation according to Deloitte Employment Taxes Principal Frank Klasic.

“It is important that you recognise the FBT implications of a Christmas party because if you do your homework and plan appropriately then you can avoid unforeseen cost blowouts,” Mr Klasic said.

“Generally, for income tax purposes a Christmas party or function will be tax deductible if it is subject to FBT. And if it is not subject to FBT then it will not be deductible for income tax.

“As with many tax laws, the rules are not clear-cut or straightforward and there are traps for the uninitiated. What applies for one function does not necessarily apply for another.

“For starters, a Christmas party is treated no differently to any other work related party or function as it usually constitutes entertainment and, as such, special rules can apply.

“In order to determine the FBT status of the function, you need to consider such things as the income tax status of the employer, where the function is held, who attends, what was provided, how much it costs and how similar functions are treated.”

Mr Klasic suggests that as a general rule employers should consider a Christmas party subject to FBT unless an exemption can be found.

“The good news is that if a Christmas party for employees is held on the work premises during a working day then it is generally exempt from FBT. There are exceptions to this rule and employers should always check their own situation.

“Or if the Christmas function is a one-off annual event and the total cost per head is less than $100, it is usually exempt from FBT as it constitutes a minor benefit,” Mr Klasic said.

“In some cases, the ATO has indicated that the exemption can apply where the total cost does not exceed $125 although this is subject to certain conditions being satisfied.

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