Christmas parties can be subject to Fringe Benefits Tax (FBT). What is FBT? Simply it’s the tax applied to benefits that are provided to employees which an employer must pay tax on. Think of motor vehicles for private use, employer paying for gym membership, entertainment by way of free tickets to concerts, reimbursing an expense incurred by an employee (eg. school fees), etc.
FBT and Christmas parties:
Exempt Property Benefits
The costs (such as food and drink) associated with Christmas parties are generally exempt from FBT if they are provided on: a working day; on your business premises; and consumed by current employees. The property benefit exemption is only available for employees, not associates.
Exempt benefits - minor benefits
$300 is the threshold for a minor benefit that is exempt from FBT, however, there are some conditions that apply to this exemption.
- Firstly, a minor benefit has to be infrequent and irregular. And the total amount spent per head also has to be $300 or less.
- If you want to provide gifts to your employees: it may be a minor benefit, so it’s exempt, if the value of the gift is less than $300.
- If an employer provides both a gift and a Christmas party at the same time, the benefits are associated benefits, but both need to be considered separately to determine if they are less than $300 in value.
- If they both are under $300 and all other conditions of a minor benefit are met, they will both be exempt benefits.
- If a gift or benefit is exempt from FBT, you won’t be able to claim it as an income tax deduction or claim any GST credits from the purchase.
- Whether a gift is deductible and GST credits can be claimed depends on whether the gift provided is ‘non-entertainment’ or ‘entertainment. Tickets to concerts, movie vouchers and holidays are classified as entertainment gifts and are usually subject to FBT, whereas hampers, vouchers, bottles of wine and other similar gifts are ’non-entertainment’ and are generally exempt for FBT.
It’s easy to get things confused around the silly season, but if you keep the above handy as a guide you’ll be sure to plan your festivities – guilt free.
As always, contact your local ITP professional if you need more clarification.