With Christmas just around the corner, businesses across Australia are heading into festive season and engaging in Christmas parties and end of year client and supplier celebrations. So, here are our top tips for businesses so they can keep out of trouble with the taxman this Christmas, with a special focus on FBT (fringe benefits tax).
Celebrations for your employees
Off-site Christmas functions at places such as a hotel, restaurant or function centre need to be treated as a fringe benefit, with FBT payable by the employer.
If the cost per employee is less than $300, no FBT will be due (because of the minor benefits exemption, which also applies if spouses or partners come along to the party).
The minor benefits exemption applies to each benefit provided, so if you spend $290 per head on the party and then also give a gift to each employee valued at another $290, then both expenses are free of FBT.
However, if you spend more than $300 per head on the function, the whole lot will be subject to FBT, not just the excess.
The costs (such as food and drink) of a Christmas party are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. If spouses or other guests of employees are entitled to attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption.
If your business also covers the cost of taxi fares to and from the festivities, these costs will count as part of the $300 per head limit if the function is off-site, but will be exempt from FBT if the party is at your premises.
If your Christmas party is exempt from FBT, it isn’t tax deductible for income tax purposes. Nor can the business claim GST credits for the costs incurred.
Even though gifts to employees are also covered by the FBT exemption, they generally ARE tax deductible and GST credit can be claimed.
Celebrations for your clients and suppliers
If you hold a party for clients and suppliers, there is no FBT (which is only relevant where a benefit is provided to employees and their associates) but the costs aren’t income tax deductible.
If you give festive gifts to clients and suppliers, you can generally claim a tax deduction for the cost of those gifts where the gift is given with a view to generating future income in the business.
Your business can’t claim a deduction for gifts of capital items, such as piece of technology (a tablet computer, for instance) and nor can you claim a deduction if the gift is for private purposes.
The line between a gift and the provision of entertainment can be hazy, so do talk to an accountant if you’re not 100 per cent sure whether you’re giving a gift or providing entertainment.
Mark Chapman, Tax Communication Director, H&R Block