’Tis the season to party, but how up-to-date are you on fringe benefits tax [FBT] and Christmas dos? If you’ve had a fairly solid year and want to give back to your employees, their associates and contractors by way of an end-of-year shindig, you might need to know what you’re options are around FBT and Christmas work extravaganzas.
Do you hold a gathering on your premises, or take them to a pub/restaurant or the like? How much should you spend? Are you thinking of slipping your employees a Christmas bonus or a yuletide gift? Whatever you decide to do for your employees around the festive season, there are all sorts of FBT implications and trying to make sense of them may add to your already growing December stress levels.
Fortunately, the Financial Foreman [with thanks to the ATO] has put together a list of naughty and nice implications for FBT. Take a look, and if there is anything you’d like more information on, please give Josh a call.
Firstly, there is no separate FBT category for Christmas parties.
You may come across many different circumstances when providing Christmas events to your staff or dealing with clients’ expenditures. Fringe benefits provided to an associate or under an arrangement with a third party to any current employees, past and future employees, and their associates (spouses and children), may attract FBT.
1. Implications for FBT
The following explanations may help you determine whether there are FBT implications arising from a Christmas party.
2. Exempt property benefits
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. The property benefits exemption is only available for employees, not associates.
3. Exempt benefits — minor benefits
Putting on a Christmas party for employees may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. This threshold applies to each benefit provided, not to the total value of all associated benefits.
4. Gifts provided to employees at a Christmas party
Giving a gift to your employee at Christmas time may also be a minor benefit that is an exempt benefit where the gift’s value is less than $300. Where a Christmas gift is given to an employee at a Christmas party [that’s also provided by the employer], the benefits are associated benefits, but each needs to be considered separately. If both the Christmas party and the gift are each less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
5. Tax deductibility of a Christmas party
The cost of providing a Christmas party is entertainment and is income tax deductible only to the extent that it’s subject to FBT. Therefore, any party costs exempt from FBT (ie; exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction, and no GST is claimable. So, from a tax point of view it’s better to not be able to claim the deduction than being subject to FBT, which has a higher rate of tax.
After all that, you should be in a joyous and festive frame of mind and ready to host a cracking show for your employees, associates, and perhaps even your clients and suppliers. Just remember, the Financial Foreman has all the answers and loves a great Christmas party.
If you’re looking for a jovial read, you can find out more about FBT and Christmas parties from those jolly folk at the ATO.
Fa la la la la, la la la la.
The Financial Foreman