As the Christmas season approaches, so too do the festive celebrations with your staff and colleagues. To avoid any dampeners on your Christmas cheer, it is important to plan and consider the Fringe Benefit Tax (FBT) implications of providing Christmas parties and gifts to your employees.
There is no separate FBT category for Christmas parties. With this in mind, here are five tips on how to keep your staff and the taxman happy this Christmas.
1. $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 less than $300 (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 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.
2. 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 may be the most tax-effective.
Where the employer chooses to value entertainment using the “actual method”, the associated expenses of hosting the Christmas party on the business premises, such as food and drink (including alcohol) are generally exempt from FBT for employees (only) with no dollar limit. Note that you cannot claim the GST credit nor any income tax deduction on these expenses. A taxable fringe benefit may arise if associates are invited and the per-head cost $300 or greater. An employee’s taxi trip home after the party can also be an exempt benefit when provided from the office.
3. Consider the invitation list
The less than $300 “minor benefit” threshold is applied 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 benefit exemption could apply to both the employee and their associate.
4. 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 or sporting events, movie passes, 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.
5. Keep track
Keeping separate records for entertainment, meals, alcohol, and gifts is crucial, especially over the Christmas period where there may be multiple and 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, in particular, Christmas parties. In light of the many different categories of fringe benefits, each containing their own valuation, exemption, concession, and deduction rules, we recommend speaking to your tax 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 company’s Christmas giving, you can avoid an FBT headache in the New Year and keep your staff happy over the holidays.
Danny Olsen, Partner, BDO Australia