As the holiday season approaches, so do the celebratory gatherings with your co-workers. To avoid putting a damper on your holiday spirit, it's critical to plan ahead of time and consider the Fringe Benefit Tax (FBT) consequences of delivering Christmas parties and presents to your staff.
Because there is no special FBT category for Christmas parties, here are five ideas to keep both your employees and the taxman pleased this holiday season.
1. The magic number is $300.
The provision of a Christmas party or gift to an employee or an employee's associate may be considered a'minor benefit' and thus exempt from FBT if the cost of the party or gift is less than $300 (including GST) per employee/associate, the employee/associate is not regularly provided with similar benefits, and/or the employer would have difficulty identifying or recording the benefits.
This modest benefits exemption does not apply to meal entertainment if the employer uses the 50/50 technique to identify meal entertainment entitled to FBT and income tax deduction.
2. Consider your venue options.
Hosting your team Christmas party on the business premises on a working day may be the most tax-effective option.
When an employer decides to value entertainment using the 'real approach,' the accompanying costs of having the Christmas party on the business premises, such as food and drink (including alcohol), are normally excluded from FBT for employees (only), with no budget limit.
It is important to note that you cannot claim the GST credit or any income tax deduction for these costs. If associates are invited and the per-head cost is $300 or more, a taxable fringe benefit may result.
When supplied by the office, an employee's cab ride home after the party might also be considered an exempt benefit.
3. Take into account the invitation list
The'minor benefit' level of less than $300 is applied per head, not per employee.
For example, if you invite workers and their partners to Christmas dinner at a restaurant with a per-head cost of $220 (inc. GST), the modest benefit exemption may apply to both the employee and their colleague
4. Non-entertainment vs. entertainment presents
Giving a Christmas present to workers is a wonderful way to express your gratitude; nevertheless, they may be subject to FBT depending on whether they fit the standards of 'entertainment' or 'non-entertainment' presents. Christmas mainstays like as hampers, gift cards, bottles of wine, and so on are examples of non-entertainment presents. Tickets to concerts or athletic events, cinema passes, and other such items are examples of entertainment presents.
Give workers non-entertainment presents that cost less than $300 (GST inclusive) per employee for the greatest tax outcome this Christmas, since this is often 100% tax-deductible with no FBT due.
5. Maintain a record
Keeping separate records for entertainment, meals, booze, and presents is critical, especially during the holiday season when there may be several and similar activities that add up to more than the $300 barrier.
FBT is not always easy to understand.
The advice provided above aims to offer an understanding of the complexity of FBT and, in particular, Christmas parties. Given the numerous types of fringe benefits, each with its own set of valuation, exemption, concession, and deduction regulations, we recommend consulting with us to ensure that any negative tax consequences are reduced when offering fringe benefits to your employees.
You may prevent an FBT headache in the New Year and keep your employees happy throughout the holidays by preparing ahead of time and having a thorough grasp of the ramifications of your organization's Christmas gifting. If you would like more information on how we can assist you, please contact our friendly staff.