Well, it’s almost that time of year again! The time of year when we eat, drink and get very merry. We all love our annual Christmas parties but so do the ATO. Christmas is a time for giving and if you are wanting to give your employees a gift or a party to remember you need to be aware that you could be faced with a potential Fringe Benefits Tax (FBT) issue. Here are some things to consider this Christmas while treating your staff to the annual ‘soiree’.
The costs associated with Christmas parties, e.g. food and drink, are exempt from FBT if they are provided on a working day on your business premises and consumed by your employees, and not their associates (i.e. spouses and children). It’s not sounding like the foundations of a wonderful Christmas party but with a little imagination…
The costs associated with Christmas parties held away from your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are classified as “exempt minor benefits” which are described as less than $300 in notional taxable value, and unreasonable to treat as a fringe benefit.
The provision of a Christmas party to an employee, or their associate, may be considered an “exempt minor benefit” and exempt if the cost of the party is less than $300 per employee. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits. You can have a good party for $300 a head.
Giving a gift to an employee at Christmas time may be another minor benefit that is exempt when the value of the gift is less than $300.
When it is given to an employee at a Christmas party that is also provided by the employer, both the gift and the party are considered separately to determine if they are each less than $300 in value. If so, and the other conditions of a minor benefit are met, they will both be exempt benefits. With these rules in play, there are makings of a very decent tax-friendly Christmas Party.
What the taxman giveth… 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 as described above) cannot be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
If you are now wondering if you want to have a party at all, please don’t read the newsletters of Lawyers in conjunction with this one. The issues of workcover, OH&S and liability will turn the most ardent lover of Christmas into the Grinch at the drop of a santa hat.
If you are unsure which expenses are deductible over the festive season or whether you should be lodging a Fringe Benefits Tax return, contact your Accountant to discuss this further. After all, we don’t want the ATO to come in and take away the Christmas spirit.