The festive season is quickly approaching! This means that many Sunshine Coast business owners are planning and organising their staff Christmas parties. Something that should be kept in mind when planning your staff Christmas party, is Fringe Benefits Tax (FBT). Fringe Benefits Tax is applied when an employer provides a benefit (such as gifts or entertainment), which is not included in the employee’s usual wage or salary. If an expense of this nature attracts FBT, then GST can be claimed, and a tax deduction can be claimed on that expense.
Exempt Fringe Benefits
Some Christmas benefits provided by employers will be exempt from Fringe Benefits Tax, namely:
- Food and drink provided at your staff Christmas party will be exempt from Fringe Benefits Tax if it is provided on a working day, on the business premises and is consumed by current employees.
- If the cost of the party is less than $300 per employee, the costs may be also exempt from Fringe Benefits Tax. This also applies to an associate of the employee.
- If the value of a gift to an employee at Christmas time is less than $300, the benefit may be exempt from FBT as long as it is not considered entertainment.
- If the gift is provided at a Christmas party, by the employer, each benefit needs to be considered separately to determine whether the value is more or less than $300.
Tax Deductibility of Staff Christmas Parties
Generally speaking, the costs related to your staff Christmas party can only be claimed as an income tax deduction if the cost for each attendee exceeds $300 and you pay Fringe Benefits Tax on the benefit provided. The table below looks at some Christmas party scenarios and how each will be treated for FBT purposes:
|Scenario||Does FBT apply? Do you obtain a tax deduction?|
|A Christmas party is held on a working day at the businesses premises and only employees attend||There is no FBT payable as this is an exempt benefit. There is also no tax deduction.|
|A Christmas party is held at a local restaurant and only employees attend. The cost of food and drinks is $100/head in total.||There is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction.|
|A Christmas party is held at an expensive restaurant and the 8-course degustation menu with matching wines is ordered. Only employees attend the party. The cost of the 8-course degustation menu with matching wines is $350/head||FBT is payable in respect of the employees and their families as the minor benefits exemption will not apply, given that the benefit is more than $300/head. The cost is an allowable tax deduction.|
Gifts and Entertainment
Gifts may or may not be subject to Fringe Benefits Tax, depending on what kind of gift is being offered and who they are being gifted to. For example, gifts provided to an employee are subject to Fringe Benefits Tax, unless the total cost of the gift is less than $300. In this case, the minor benefit exemption would apply. Cash gifts to employees are tax deductable if processed through payroll along with superannuation and PAYGW tax.
If a gift is provided to a client, it will not be subject to FBT and it will be tax deductible. Non-entertainment gifts provided to a client such as alcohol, chocolates, vouchers and hampers are all tax deductible, and you can claim the GST on these. On the other hand, entertainment gifts provided to a client are not tax deductible, and you cannot claim the GST.
The key aspects to consider when understanding FBT and Staff Christmas Parties are:
- Where is the party being held?
- Who will be attending? (Friends, Family, Clients)
- How much is the cost per person?
- Are there gifts or entertainment involved?
If you have any questions regarding your Staff Christmas Party and Fringe Benefits Tax, please call us on 07 5451 1118.