Five tips for an FBT friendly festive season
14 December 2016
Fringe benefits tax (FBT) is the last thing on people’s minds come Christmas time. However, it is worth noting that there can be FBT implications arising from work Christmas functions and employee gifts if you are not vigilant.
With this in mind, here are five tips on how to keep your staff and the taxman happy this Christmas.
$300 is the magic number
The provision of a Christmas party or gift to an employee or an employee’s associate may be considered a ‘minor benefit’ and, therefore, exempt from FBT if the cost of the party or gift is $300 or less (including GST) per employee/associate and the employee/associate is not regularly provided with similar benefits and/or the identification or recording of the benefits would be difficult for the employer.
This $300 minor benefits exemption will not apply to meal entertainment where the employer chooses the 50/50 method of identifying meal entertainment that is subject to FBT and income tax deduction.
Keep in mind your choice of venue
From an FBT point of view, hosting your staff Christmas party on the business premises on a working day is typically the most tax effective.
The associated expenses, such as food and drink (inclusive of alcohol), are, generally, exempt from FBT for employees (only) with no dollar limit, noting that you cannot claim the GST credit nor any income tax deduction. A taxable fringe benefit may arise if associates are invited and the per head cost is greater than $300.
An employee’s taxi trip home after the party can also be an FBT exempt benefit when provided from the office.
Consider the invitation list
The $300 ‘minor benefits’ threshold is on a per-head basis and not a per-employee basis. For example, if you invited employees and their respective partners to Christmas dinner at a restaurant with a per-head cost of $220 (inc. GST), the minor benefits exemption could apply to both the employee and their associate.
Entertainment vs non-entertainment gifts
Giving a Christmas present to employees is a fantastic way to show your appreciation, however, they can attract FBT depending on whether they meet the requirements of ‘entertainment’ or ‘non-entertainment’ gifts. Non-entertainment gifts include Christmas staples such as hampers, gift vouchers, bottles of wine, etc. Whereas entertainment gifts include tickets to concerts, movie passes, holidays and the like.
For the best tax outcome for your business, this Christmas look to give staff non-entertainment gifts that cost less than $300 (GST inclusive) per employee as this is typically fully tax deductible with no FBT payable.
Keeping separate records for entertainment, meals, alcohol and gifts is of great importance, especially over the Christmas period where there may be multiple, similar events that would otherwise add up to over the $300 threshold.
FBT is not always straightforward
The tips above seek to provide an insight into the complexities of FBT and Christmas parties. In light of the many different categories of FBT benefits each containing their own valuation, exemption, and deduction rules, we recommend speaking to a BDO Private Clients adviser to ensure any adverse tax effects are mitigated, when providing fringe benefits to your employees.
By planning ahead and gaining an in-depth understanding of the implications of your organisation’s Christmas giving, you can avoid an FBT headache in the new year and keep your staff happy over the holidays.
This article has been carefully prepared, but has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations, and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO (Australia) Limited and each BDO member firm in Australia, their partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.