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Christmas parties, to claim or not to claim

The provision of entertainment for staff is generally not an allowable income tax deduction and by hosting a business Christmas party you are effectively entertaining your staff and also their associates. As your business accountant we want to advise you by doing so, the entertainment expense will be subject to Fringe Benefits Tax, but then also allowable as a deductible income tax expense if you choose to pay the correct amount of FBT applicable. However, any tax savings on the income tax side will most likely be outweighed by the FBT payable, not to mention the onerous administrative requirements of having an annual FBT return prepared and lodged.

The major exception in this area is the "minor benefit" rule. This states that a minor benefit is one that has a notional taxable value of no more than $300.00 and one that would be unreasonable to be treated as a fringe benefit. This can normally be the case where the benefits are provided on an infrequent basis and there is little ambiguity over the value of the entertainment being provided.

By treating the payment of a business Christmas party under the "minor benefit" rule, the expense is still NOT income tax deductible, but nor will it be subject to FBT. Hosting the party on business premises during working hours will also reinforce the application of the minor benefit rule. Of course, without going into too much detail, hosting parties on business premises opens up an entirely different can of worms that is best left for another time.