Are Christmas Parties Tax Deductible?

Certain Christmas parties are indeed tax deductible, but others are not, depending on the attendees and type of party. Are attendees employees, employee partners or suppliers? Also consider the GST implications. For GST registered businesses claiming the GST also depends on the type of party. Another consideration if Fringe Benefits Tax (FBT). A very unpopular and expensive tax that I recommend you avoid wherever possible.

Here we have listed the different types of parties and the tax implications. (Note that yes below is tax favourable.)

1. Parties held on business premises, with a light meal and no alcohol.
   • Employees and employee’s partners:
     1. Tax Deductible = Yes
     2. Claim GST = Yes
     3. FBT Exempt = Yes
   • Customers & Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

2. Parties held on business premises with a substantial meal and or alcohol costing under $300:
   • Employees, employee’s partners, Customers and Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

3. Parties held off premises costing less than $300 per attendee:
   • Employees, employee’s partners, Customers and Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

4. Parties costing $300 or more per attendee:
   • Employees and employee’s partners:
     1. Tax Deductible = Yes
     2. Claim GST = Yes
     3. FBT Exempt = No

• • Customers & Suppliers:
    1. Tax Deductible = No
    2. Claim GST = No
    3. FBT Exempt = Yes

Some employers have an optional Social Club Fund. Employees can choose to contribute a small amount from their wages (eg $4 per week) to the fund and this goes to pay or partly pay for the staff Christmas Party.

The tax consequences of your Christmas party might not influence the type of party that you host. However, the tax consequences do affect the ultimate cost of the function and should be part of your decision about the amount to spend on your function.

Most businesses will host a party from category 3 above. You should remember that a Category 3 party will cost 35% more than category 1, because of the forgone tax deduction and lost GST claim. If you are thinking of spending $60 a head on your party, you should think again, because that party is effectively costing you $81 per attendee.

A category 4 party for your team, although tax deductible is subject to FBT, and that is very bad! It costs 98% more than Category 1 and has a minimum spend per head of $300!

Don’t forget your workplace obligations to the safety of your team as this extends to functions like Christmas parties. Document a behavior standard to avoid excess alcohol consumption, harassment, and inappropriate behaviour, and encourage or provide safe travel to and from the function.

Accountants 2 Business wish all of our clients a happy Christmas and a safe and prosperous New Year!

Need Help?

If you need clarification on tax deductibility or how the business gift tax rules apply to you, we can help. Book a meeting with one of our experts or download our free guide for more tips.

The information in this article is general in nature and might not be right for your circumstances. Please arrange a meeting with one of our Accountants to discuss your particular needs.