Christmas parties, staff gifts and the Fringe Benefits Tax at Christmas – what are the tax implications?
With Christmas a matter of weeks away, many businesses will be organising their staff Christmas parties or wondering whether they should buy gifts for their staff, clients or suppliers. Will the Fringe Benefits Tax at Christmas affect you?
You want to thank your staff for all their hard work and dedication throughout the year, but did you know that a staff Christmas party may not be tax deductible? It all depends upon who attends, where it’s held and the cost per head.
Subject to the value of the staff Christmas party held off the premises being less than $300 per head, the benefit for each staff member is exempt from Fringe Benefits Tax.
This sounds complicated, doesn’t it? Well, read on and we will explain what it means so you can make a more informed decision on how you want to reward your staff, clients and suppliers this Christmas.
Regardless of whether Christmas parties for staff and their families are held on or off the premises, employers are generally liable to pay FBT on the cost of food and drink, described as “meal entertainment”. Fortunately, the minor benefit exemption allows employers to escape the FBT liability if the cost per head is under $300. The ATO’s view as to the application of the exemption is that it may be applied to each person individually rather than to the total cost of the party.
Apart from the amount of a minor benefit, the benefit would need to be provided on an irregular and infrequent basis and, although Christmas is a regular occurrence, it is probable the minor benefit provided at Christmas would satisfy the requirements for exemption (assuming employers were not holding, say, monthly staff parties. WOW! What an employer that would be!).
The expense of a Christmas party for staff and their families under $300 would not be tax deductible to the employer, being meal entertainment without the FBT liability, nor would any goods and services tax be claimable.
Employers can choose from two methods when considering the tax implications of a Christmas party or Christmas gift to their staff: The 50/50 method or the actual method. It may sound confusing, but we can explain further and are always here to help you if you are lost! Simply CONTACT US.
The Actual Method
Under this method, where a Christmas party is held at the business premises on a working day and food and drink is supplied to staff only, you will be exempt from FBT and no tax deduction is available.
Any food and drink supplied to clients or suppliers is exempt from FBT and no tax deduction is available.
If staff and families attend and the cost per head exceeds $299, FBT will be applied and a tax deduction is available. Again, any food or drink supplied to clients or suppliers is exempt from FBT and no tax deduction is available.
Therefore, in simple terms, if the cost per head of staff and family members is less than $300, no FBT will apply and no tax deduction will be available. In all situations neither FBT nor tax deductions apply to any food or drink supplied to a client or supplier.
The 50/50 Method
Using this method means that 50% of the total cost for food and drink for staff, families, clients or suppliers will be subject to FBT and is tax deductible. This method will also apply to any costs of hiring a venue for entertainment and also meal entertainment.
Christmas gifts for staff
The tax treatment of gifts for staff depends on whether the gifts are entertainment or non-entertainment. Entertainment gifts would include tickets for sporting events or functions, movies, holidays etc. These would attract FBT and the expense would be tax deductible, except where the minor benefits exemption applies, in which case there is no FBT liability and the expense would not be deductible.
In the case of non-entertainment gifts such as hampers, bottles of spirits, wine, flowers, perfume, gift vouchers etc, a tax deduction is allowed and FBT would be payable unless the minor benefits exemption applies, in which case the gifts would nevertheless be tax deductible.
Christmas gifts for clients or suppliers
No FBT is payable and the expense is tax deductible where non-entertainment gifts are provided, but in the case of entertainment gifts provided there is, of course, no FBT and the expense is not tax deductible.
So what should you give your staff for Christmas?
Well, the most tax effective thing to do is keep the cost below $300 per staff member, making sure that the gift is non-entertainment, and therefore fully tax deductible and exempt from FBT.
Don’t forget though, rewarding loyal and productive staff with a social occasion shows them that you appreciate their efforts and contributions throughout the year. The trick is not to go mad… like anything in life, everything in moderation!
Example: Christmas party held on business premises
A Christmas party provided for current staff on business premises or worksite on a working day may be an exempt benefit. The cost of associates (people other than employees, clients, contractors or suppliers) attending the party is not exempt unless it is a minor benefit.
Say a small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine. The implications for the employer in this situation would be as follows:
If… |
Then… |
Current employees only attend |
There are no FBT implications as it is an exempt property benefit. |
Current employees and their associates attend at a cost of $180 per head |
- for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
- for associates – there are no FBT implications as the minor benefit exemption applies.*
|
Current employees, their associates and some clients attend at a cost of $365 per head |
- for employees – there are no FBT implications as it is an exempt property benefit
- for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
- for clients – there is no FBT payable and is not tax deductible.
|
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Example: Christmas party held off business premises
Another company decides to hold its Christmas party at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. The implications for the employer in this situation would be as follows.
If… |
Then… |
Current employees only attend at a cost of $195 per head |
There are no FBT implications as the minor benefits exemption applies.* |
Current employees and their associates attend at a cost of $180 per head |
There are no FBT implications as the minor benefits exemption applies.* |
Current employees, their associates and clients attend at a cost of $365 per head |
- for employees and associates – a taxable fringe benefit will arise
- for clients – there is no FBT payable and the cost of providing the entertainment is not tax deductible.
|
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
The above advice is of a general nature and should not be your only source of information. We will be happy to advise you further.