Reminder of Fringe Benefits Tax and Christmas Festivities
With the Christmas season approaching quickly and festivities underway, we here at Fortis Accounting Partners would just like to remind you all why it is important to know what the rules are regarding fringe benefit tax (FBT) and Christmas/ Parties, to ensure you do not get penalised or claim the incorrect tax amount later on.
According to the ATO, Fringe Benefit Tax (FBT) is when Employers pay tax on certain benefits they provide to their employees or their employees’ associates.
Fringe Benefits Tax and Christmas parties
There is no separate fringe benefits tax (FBT) category for Christmas parties and you may encounter many different circumstances when providing these events to your staff. Fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT. If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanation may help you determine whether there are FBT implication arising from Christmas party.
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. A taxable fringe benefit will arise in respect of and associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.
The ATO provides an example of how Fringe Benefit Tax applies to Christmas party held on the business premises:
Example
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 are as follows.
If…
| Current employees only attend at a cost of $195 per head |
|
| Current employees and their associates attend at a cost of $180 per head |
|
| Current employees, their associates and Clients attend at a cost of $365 per head |
|
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
The ATO provides an example of how Fringe Benefit Tax applies to Christmas party held of the business premises:
Example
Another company decides to hold its Christmas function 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…
| Current employees only attend at a cost of $195 per head |
|
| Current employees and their associates attend at a cost of $180 per head |
|
| Current employees, their associates and Clients attend at a cost of $365 per head |
|
If you have any queries regarding FBT or anything else tax or finance related – please don’t hesitate to give the team at Fortis Accounting Partners a call on 02 9267 0108. Alternatively, you can reach us at info@exemplary-financial.flywheelsites.com.
