With the Christmas season quickly approaching and the festivities underway, it’s important to know what the rules are regarding fringe benefits and Christmas parties/presents.
According to the ATO, the costs (eg. food and drink) associated with Christmas parties are exempt from FBT (Fringe Benefits Tax) if they are ‘provided on a working day on your business premises and consumed by current employees’. A taxable fringe benefit will arise if an associate of an employee attends the party, if not it is otherwise exempt under the minor benefits exemptions. The most tax effective way to throw a Christmas party is to have one on your premises on a working day. However, understandably this is not always the most popular option among employees.
Christmas parties for employees held off the business premises may be a minor benefit and exempt if the cost of the party is less than $300 per employee. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost is less than $300.
A Christmas gift to an employee may also be a minor benefit that is exempt where the value of the gift is less than $300. This can include non-entertainment gifts (wine, flowers etc). The provision of entertainment gifts (tickets to movies, sporting events, holidays etc) has different tax implications. When a Christmas gift is provided to an employee at a related Christmas party that is provided by the employer, this is an associated benefit but each benefit needs to be considered separately to determine if they are less than $300 in value in total. If the party and the gift are less than $300 in value, they will both be exempt benefits.
The costs associated with providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Any costs that are exempt from FBT cannot be claimed as an income tax deduction. The costs associated with entertaining clients are not subject to FBT and are not income tax deductible.
The most important thing to remember is to keep transaction records of all Christmas parties and gifts to employees. For more information, please check out the ATO website or get in touch with the team here at Fortis Accounting Partners directly. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
