When it comes to the Festive Season, employers potentially face a number of FBT (fringe benefits tax) issues, particularly when it comes to events such as Christmas parties and other entertainment.
Holding a Christmas party attended by employees and their associates will be the provision of entertainment for FBT purposes. Often a Christmas party will involve entertainment by way of supplying food and drink and hiring or leasing an entertainment facility.
Meals are considered as entertainment not only with the offering of food or drink but also any accommodation or travel connected with this. Rather than calculating the taxable value of meal entertainment based on the actual expenditure incurred, a taxpayer may elect to value meal entertainment using one of two methods:
Under the 50/50 split method, half of all expenses incurred in providing entertainment are subject to FBT, and there is no need to identify if the entertainment is provided to an employee. Alternatively, where the 12-week register method is adopted, the FBT is based on the proportion of entertainment expenditure attributable to employees and their associates, derived from a register maintained for 12 weeks of the FBT year.
If one of these two methods is used, the in-house property benefit exemption and minor benefit exemption will not be available for a Christmas party held on business premises.
If an employer makes a contribution to its employees’ social club there will be no fringe benefit. This is because at the time the contribution is made to the social club, the employees who will receive a benefit as a result of the contribution cannot be identified.
Often a Christmas party will include the hiring of a specific venue. This may, for FBT purposes, give rise to entertainment facility leasing expenses.
Entertainment facility leasing expenses are those incurred in hiring or leasing:
The actual cost of leasing an entertainment facility to provide entertainment to employees or their associates may be used in determining the taxable value. However, you may elect to value the entertainment facility leasing expenses using the 50/50 split method. Remember, you cannot elect to use the 50/50 split method or the 12-week register method where you provide benefits attributable to entertainment facility leasing expenses under a salary packaging arrangement on or after 1 April 2016.
Christmas gifts give rise to FBT considerations too.
Where presents or hampers are given to employees, the taxable value for FBT purposes will be the amount of expenditure incurred in providing the gift. Generally, presents or hampers given to employees at a Christmas party will not be considered to be the provision of entertainment. Accordingly, the minor benefit exemption for the benefits with a GST-inclusive value of the gift being less than $300 per employee or their associate may be available.
Taxi travel to or from the entertainment venue is often offered to employees. If travel is from an employee’s home to the party venue (that is not the work place) and home again, this is considered part of the Christmas party costs and the taxi fare should be included in the cost of the benefit.
If the Christmas party is held on work premises, the taxi from an employee’s home to the workplace, and/or from the workplace back to home after the festivities may be exempt from FBT.
Langdon Patrick, Enterprise Partner, KPMG