Fringe benefits tax and Christmas parties
Posted on 10th December 2013 by Christabelle Harris
Christmas is rapidly approaching and not only will business owners be preparing Christmas Parties, they will be considering what gifts, if any, they will provide to clients and employees. An important issue to consider is the possible Fringe Benefits Tax (FBT) and income tax deductibility that may be applicable when providing ‘entertainment’ to staff and clients.
Tax Deductibility of a Christmas Party
The cost of providing a Christmas Party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (refer below) cannot be claimed as an income tax deduction. The costs of entertaining clients are not subject to FBT and are not income tax deductible.
FBT on a Christmas Party
For FBT purposes Christmas parties fall into the category of “entertainment benefits” and as such will incur FBT unless specifically exempt or they fall under the “minor benefits” exemption. A minor benefit is one that is provided to an employee/client on an infrequent or irregular basis and the cost is less than $300 inclusive of GST per employee/client.
Additionally, the costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.
| Example A business decides to have a party on its business premises on a working day before Christmas. The business provides food, beer and wine. The implications for the employer in this situation would be as follows. |
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| If… | Then… |
| current employees only attend | there are no FBT implications as it is an exempt property benefit. No tax deduction or GST can be claimed. |
| current employees and their associates attend at a cost of $180 per head |
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| current employees, their associates and some clients attend at a cost of $365 per head |
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* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
| Example Another business decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. The implications for the employer in this situation would be as follows. |
|
| If… | Then… |
| current employees only attend at a cost of $195 per head |
|
| current employees and their associates attend at a cost of $180 per head |
|
| current employees, their associates and clients attend at a cost of $365 per head |
|
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Christmas Gifts
Gifts are separated into two categories:
Non Entertainment Gifts – for example a hamper, a gift voucher, a bottle of wine, flowers, pens etc
Entertainment Gifts – forexample theatre tickets, sporting events, movies, holidays etc
Non-entertainment gifts provided to employees “separately” from the Christmas party, however, are exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. The ATO has indicated that if these type of gifts are given to employees two weeks before the actual Christmas party, then the gift and the Christmas function will be treated as separate benefits. This means that the $300 FBT exemption limit can be claimed twice.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT regime, as they are not provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts, provided they are not excessive or overly valuable.
Entertainment gifts have different tax implications. If they are given as gifts to employees and family members and are over the value of $300 FBT is payable and a tax deduction is allowed. Where the combined cost for employees/associates is less than $300 GST inclusive, there is no FBT, no tax deduction is allowed and no GST credit can be claimed.
Of course this all sounds quite complex, however the team of accountants at GeersSullivan can ensure that the taxman is kept as far away as possible from your Christmas party and provide you with the best tax outcome.