Solution :-

Ans

1) FACTS OF THE SCENARIO:

in the scenario, Alex Ltd. is planning to have a Christmas party for staff on the last business day of the year. Staff are allowed to bring only one of their associates and food and drinks are served for free.

The number of staff attending this party is going to be 20 people and a total of 40 individuals will be served (including the associates).

The estimated cost of the party is $7,480 for the current tax year 2019-2020.

2) RELEVANT LAWS AND CASES:

When it is about entertaining clients or colleagues, some of the entertainmnt expenses are tax deductible. Tax deduction can be claimed only if it is a business expense.

Entertainment supplied for charity can be 100% deductible.

In general, entertainment expenses cannot be called for tax deduction unless they are classied as Fringe Benifits

3) APPLiCATION OF LAWS AND CASES:

The following conditions must be met before claiming deduction for staff Christmas party.

a) Total cost per hed must not exceed $300 per head.

b) The staff/employees must be the reason for throwing the party.

4) CONCLUSION

Christmas party is considered " entertainment" and in many cases is subject to Fringe Benifits Tax( FBT). FBT is an additional tax paid by the employers for some benefits such as entertainment provided to the team. Where FBT is paid, in most cases tax deduction can be claimed for the cost of benifit.

Christmas party are exempt from FBT if they are held in a business day on work premises only for employees and their associates, as long as the head per benefit is $300( minor benefit exemption). Hence there is no tax deduction.

Alongwith, if the Christmas party is held at a local resturant and employees and their associates attend and the cost per head is still less than $300, there is no FBT payable so the minor benefit exemption applies and hence there is no tax deduction.

So, For the above situation, there is a Christmas party is the local restaurant at the ground floor of the office and the cost per head is $187 per head($7480/40). Hence, ther is no FBT that is payable as the Minor benefit exemption applies and there is no tax deduction