Christmas is a time for celebration but when considering that festive spending don’t forget the potential tax costs – entertainment tax or FBT provisions may apply. We 
have highlighted the tax treatment of some typical forms of Christmas entertainment.
Entertainment Tax or FBT?
There are numerous exemptions from the entertainment tax rules but these are unlikely to apply to most cases of Christmas entertainment. One possible exemption is for entertainment that is subject to FBT. The FBT provisions will apply to any entertainment benefit that is enjoyed outside of employment duties and at the employee’s discretion.
1. Staff Christmas party – The cost of food and drink for a staff party is 50% deductible (as well as incidental expenditure relating to catering, and music or other entertainment). This applies whether the party is held on the business premises or off-site
2. Christmas meal for customers -The cost of taking customers out to a meal is generally 50% deductible.
3. Gifts of food and wine to staff – The cost of gifting food and wine to staff is fully deductible, provided FBT is payable on the gifts. If no FBT is payable, the cost of the gifts is 50% deductible.
In most cases, employees can choose when to consume the food and wine, therefore the gifts constitute fringe benefits. However, the $75 per employee per quarter FBT exemption may apply. The exemption is non-cumulative and only applies where the total value of such benefits for all employees does not exceed $450 per quarter.
4. Gifts of food and wine to customers – The cost of gifting food and wine to customers is generally 50% deductible.
5. Other gifts to staff – Generally, the cost of gifts (other than food and beverages) to staff does not fall within the entertainment tax provisions and is fully deductible.
However, in the majority of cases, the gifts constitute fringe benefits. The $75 per employee per quarter FBT exemption noted earlier may apply.
6. Other gifts to customers – The cost of gifts (other than food and beverages) to customers is generally fully deductible
