How FBT may apply to the office Christmas Party
25 November 2019
Fringe benefits tax (FBT) is a tax payable by employers for certain benefits that they provide to their employees (or an employees’ associate, such as a family member) in place of a salary or wage. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
With the holiday season coming up quickly, employers may be starting to organise their Christmas parties and should be aware of the tax implications of such events. It should be known that there is no separate fringe benefits tax (FBT) category for Christmas parties and you may encounter many different circumstances when providing these events to your employees.
There are various categories of FBT extending from use of company motor vehicles, loans from employers to employee, use of company property to parking on business premises. This article will focus on the implications of hosting a Christmas party for employees and what needs to be considered.
If your business is not a tax-exempt organisation, and does not use the 50/50 split method for meal entertainment (paying FBT on 50% of the amount you spend on providing meal entertainment to employees and their associates), it is important to know whether there will be FBT implications that arise from your Christmas party function. A rate of 47% will be applied to the taxable value of the non-cash benefit supplied, unless it meets one of the exemptions.
There is no specific ruling in FBT Law that deals Christmas parties, however the FBT Exempt benefits below may be relevant to your function:
Christmas Party Tax Deductions – In summary, the costs of entertaining clients are not subject to FBT and are not income tax deductible. The cost of providing a Christmas party however, is income tax deductible to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) can’t be used as a deduction.
Minor & Infrequent Benefits – if the cost of the function is $300 or less per employee or associate of the employee, there is no FBT implication due. If functions cost less than $300 per person and are not held regularly or frequently, this exemption may apply. Please note that although it will be exempt from FBT, it’s important to remember that this expenditure will not be tax deductible, nor can a GST credit be claimed.
Function held on Business Premises during Business Day – if food and drinks are provided to current employees, on the business premises during a business day, there will be no FBT implication for the employer. If associates of the employee attend and the cost per person exceeds $300, FBT will arise on for the associates but not he employees.
Transport from Function held and Business Premises – related to the above point, and an important point to remember, if an employer pays for an employee’s taxi ride home from the Christmas party held at the premises, there will be no FBT implication.
Providing Gifts to Employees at a Christmas Party – Supplying a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. However, when a gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Keeping in mind the points from above, there are a few different points to consider when planning your Christmas Party from a tax perspective. These factors include:
- When: as Christmas Parties usually only occur once a year, this satisfies the infrequent component of the exemption. If the party will cost less than $300 per person, the exemption may apply.
- Where: if the party is held for current employees during a business day on the business premises, no FBT will arise.
- Who: different implications apply according to who attends the party, whether its employees, associates of employees or clients.
Get in touch with the team at Shakespeare on 9321 2111 if you would like to discuss how this may apply to your individual circumstances.
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