With the Christmas period over and the end of the FBT year approaching, the tax deductibility and fringe benefit tax implication of last years office Christmas parties may begin to raise concerns for employers.
Here are the top 11 things you need to know as an employer providing such benefits to your employees..
- Christmas Party costs are exempt from FBT IF:
- They are provided on a working day
- They are provided on your business premises
- They are consumed by current employees only i.e not by family members or partners of employees
- If current employees say bring along their spouse or another associate of theirs, these costs are not FBT exempt unless these costs satisfy what is known as the minor benefits exemption.
- Christmas parties that were provided off business premises will be subject to FBT unless they satisfy the minor benefits exemption.
- The minor benefits exemption has a $300 threshold per employee, which applies to each benefit provided. Benefits may include a gift given to each employee. This implies that provided that the cost per employee for the party is less than $300 per employee, and the cost of a gift for an employee is also less than $300, then these costs may be FBT exempt.
- The FBT and tax implications of gifts given to employees are also dependant on where the employee decides to consume those gifts. Gifts consumed on a business premises are exempt from FBT and the employer cannot claim a tax deduction.
- A tax deduction for costs associated with the provision of Christmas parties and gifts for employees is allowable only to the extent that the cost is subject to FBT, i.e if the cost is deemed to be FBT exempt, you cannot claim a tax deduction.
- Entertainment costs for clients are not subject to FBT and are therefore not tax deductible.
- Gifts provided to suppliers and clients do not fall under the FBT regime and as such are not subject to FBT and a tax deduction can be claimed provided the gifts are not excessive, frequent or overly expensive.
- Prior to 2006, the minor benefit exemption was $100.
- The application of the minor benefits exemption also implies that the costs associated with the party and the provision of gifts to employees, is ‘ infrequent and irregular’ meaning that these kinds of benefits cannot be afforded to employees on a regular basis in order to be FBT exempt.
- Alternatively, employers can choose to account for FBT using a 50/50 split method whereby 50% of all costs associated with entertainment, meals etc for employees, associates of employees, clients, suppliers etc are subject to FBT and this 50% is therefore tax deductible.