The festive season is fast approaching and for many businesses this means Christmas party planning and gift giving. There are important things to consider when doing so as fringe benefit tax and other implications can affect your festive season.
When planning Christmas events for tax paying bodies, be sure to consider:
Costs & Number of people invited – just employees, partners? Clients or suppliers?
There are certain thresholds and provisions that may allow Christmas parties to be a minor benefit and FBT Exempt. This could occur if several conditions are met and the cost of the party is below $300 per employee. This also could apply to associates or partners of employees if conditions are met. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Location and timing – will it be held out of work hours or during the workday? Will it be on work premises or an outside location?
The ATO says 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.
What about tax deductibility?
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.
Be aware that different standards and provisions differ for tax-exempt bodies than for taxpaying bodies.
What about gift giving?
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.
E.g. A Christmas hamper gifted at a Christmas party the meets minor benefits exemption rule and is less than $300 will not attract any FBT.
Gifts considered ‘non-entertainment’ tend to be a favorable option for companies as where the costs are less than $300 – no FBT applies and it is fully tax deductible. Gifts can include flowers, wine, gift vouchers, hampers, skincare & beauty etc.
Non-entertainment gifts such as these that exceed $300 are less tax effective. A tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 49 percent on the grossed-up value (currently 2.0802).
On the other hand – gifts considered ‘entertainment’ such as tickets to shows, sporting matches and holidays are less favorable in regard to their tax implications. For example, if staff members are gifted tickets to the AFL Grand Final and the cost for each member and their associate is less than $300 GST inclusive each, FBT is not payable, but no tax deduction or GST credit can be claimed.
However, if the cost for the staff member and their associate is greater than $300 GST inclusive each, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 49 percent on the grossed-up value.
This is different when gifting to clients, where the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.
For more information and specific provisions, visit the ATO’s breakdown on Christmas parties and FBT and MYOB’s gift giving tax guide.
For tailored advice about how your business can keep FBT implications down this festive season or further information please contact your accountant at Walker Wayland NSW!
