Christmas is a busy time of year for accountants, and not just due to end-of-year parties, as employers ask: “What are the tax implications of my Christmas festivities?”, writes George Morice.
At this time of the year, I get asked about three times a week, “What are the consequences of my Christmas party?” Well, if you love a complex tax situation, then Merry Christmas, as this is a gift for you. Send me a note and I will send you a technical article on the fringe benefits tax (FBT) legislation and how it impacts your Christmas fun.
If you are not like me and don’t revel in tax legislation, then what we will do here is cover a few scenarios so you can protect yourself from a nasty FBT bill. On the other hand, if you want to go all out, at least this way you will know the true cost.
Why does this even matter?
I had a client last year who took their staff out for a nice sit-down lunch: you know the type, cocktails, nice wine, the type where you are normally still there at dinnertime and wake up the next morning feeling a long way from 100 per cent.
It turned out they had spent $11,257 on the night and they were pretty happy with that.
Then it came around to calculating the tax consequences: the net tax result (demonstrated in the table below) was an additional $4,142. Effectively, that hiked the cost of the night up by 37 per cent to $15,399. That, they were not so happy about.
So, what can be done to throw a Christmas party that won’t get hit with such a large tax bill?
Host it in the office, during work hours, and keep it just to employees
Sure, it probably won’t have the same Instagram-worthy food photos, but a Christmas party is only as good as the people who attend, isn’t it?
The good news with this one is there is no limit on the spend (in saying that, don’t go absolutely crazy, but the $300 limit doesn’t apply).
In this scenario, you will have no additional tax, but you will also not get the GST refund of the tax deduction.
If the costs were the same as the example above, then the total cost would be $11,257. If you decide to have partners of employees along, then make sure the cost per head is below $300 — including GST — otherwise, their portion of the expense will be subject to FBT.
Go out and have a good time, but keep it under $300 a head
Hosting functions in the office is not possible for some businesses, and for others they just want to get out and about — I know we do each year.
That is no issue, provided you are careful to keep the total cost below $300 per person. That way, once again you will pay no additional tax, so the total cost will be the cash amount you spend on the night.
You can have both employees and their associates to this one.
Think total cost, not just the drinks bill
In summary, where you go, when you have it, with whom and how much can ultimately make a big difference to how much the Christmas party ends up costing.
I’ve kept things here nice and simple, but I would suggest having a chat to your accountant before organising the Christmas party, to make sure all the little details are covered.
At the end of the day, it is meant to be a celebration of the year with your team, but do make sure you know the true cost of the party up front.
George Morice is the accounting director and co-owner of Prime Partners Accounting.
ATO’s 37% tax on Christmas festivities
By George Morice
Performance anxiety not just a bedroom thing
By Dr Louise Mahler
Accommodating older workers ‘not hard, just different’
By Kim Seeling Smith