Don’t let Fringe Benefits Tax (FBT) become the Grinch that spoils Christmas for your organisation.
If you are the person in charge of organising your work Christmas festivities, you need to make sure that they comply with current FBT guidelines.
There is scope within the FBT rules to celebrate, but you need to know how they work, or consult someone who does. That might be someone in the internal accounting team or, in a smaller organisation, you may need to chat with your external accountant.
When planning your Christmas party list (and checking it twice), consider:
- How much it costs
- Where and when it is held – a party held on business premises on a normal work day is treated differently to an event outside of work
- Who is invited ? Is it just for employees, or are partners, clients or suppliers also invited?
Christmas presents or gifts may also attract FBT. You’ll need to consider:
- The amount you spend
- The type of gift – gifts of wine or hampers are treated differently to gifts like tickets to a movie or sporting event
- To whom who you are giving the gift? There are different rules for employees and clients or suppliers.
Early planning will allow you to either avoid paying FBT or start planning now for how much FBT you will have to pay on top of the costs of the function and gifts.
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.
Implications for taxpaying (non-exempt) organisations
If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.
Exempt property benefits
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. The property benefit exemption is only available for employees, not associates.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Gifts provided to employees at a Christmas party
Providing 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.
Christmas party held off business premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
If you are unsure about how FBT might impact on your office Christmas plans, contact email@example.com or phone 07 3510 1500.
Source: Fringe Benefits Tax and Christmas Parties. ATO Website, 2018.