When planning your ‘Christmas Party’ be sure you understand the tax situation for you and your staff concerning ‘staff entertaining’.
It is the time of the year where you thank your employees for all their hard work and show them how valued they are to the company.
If you are thinking of hosting a work Christmas party this year or providing some presents to your employees, you need to be aware of the Fringe Benefits Tax implications.
Fringe Benefits Tax (FBT) is the tax employers pay on benefits they provide to employees and their family and other associates in addition to, or as part of, their salary or wages.
While things may be looking quite different this year due to restrictions on venues and on the size of gatherings, there is still every reason to celebrate hard work done well.
Holding a party is a great idea, where restrictions allow. But the cost of holding a staff Christmas party is regarded as “entertainment” expenditure and:
- It is not tax deductible
- You must pay fringe benefits tax if the cost per person is more than $300, which does not fall under the “minor benefits” exemption.
So, what is the “minor benefits” exemption
A minor benefit is one that is provided to staff or their associates, for example their spouse or partner, on an “infrequent” or “irregular” basis, is not considered a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.
Giving Non-Entertainment Gifts
It is a better idea to give your staff certain items known as “non-entertainment” gifts that cost less than $300, as the amount is fully tax deductible with no FBT payable.
Non-entertainment gifts given to staff (including working directors) are usually exempt from FBT where the total cost is less than $300 inclusive of GST per staff member. A tax deduction and GST credit can also be claimed.
What should I give my staff this Holiday Season?
The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.
But these favorable tax rules do not apply to gifts to sole proprietors and partners in a partnership as they cannot be employees of themselves. Benefits given to any staff employed by the business achieve the same tax outcomes as mentioned above. Some fringe benefits need to be reported on payment summaries. As the employer, if the total taxable value of certain fringe benefits is more than $2,000 in an FBT year, you must record these on an employee’s payment summary.