While Santa Claus is making his rounds during this festive season, don’t forget that so too is the taxman.
Hosting an office or client Christmas party requires significant planning and it is important to understand the fringe benefits tax (FBT) implications. Appropriate planning may eliminate the FBT burden entirely, with the following scenarios worth considering.
Under FBT legislation, a minor benefit exemption is available if the benefit provided is less than $300 per employee and is provided on an irregular basis. The hosting of a Christmas party is considered as an irregular event and, as long as the cost per employee is below $300, the minor benefit exemption can be used to eliminate any FBT implications.
If Christmas parties are held on the business premises on a normal workday, expenses such as food and drinks are exempt from FBT. In addition, there is no income tax deduction available for such expenses, nor are GST input credits allowable.
If family members of employees attend and the total cost (per head) is under $300, again, FBT will not apply and no tax deduction and GST input tax credits will be allowable. However, if the total cost per head is above $300, FBT will apply, however an income tax deduction and GST input tax credits will be allowable.
While there is no dollar limit on the food and drinks consumed by employees at a Christmas party held on business premises, if there is a band and other forms of entertainment at the party and the total cost of each benefit is greater than $300 per employee, then FBT will apply. If the total cost of each benefit is less than $300 per employee, then there is no FBT.
If the Christmas party is held at an external venue such as a hotel or restaurant, the party will again be exempt from FBT as long as the total cost per employee (and their families if attending) is less than $300. There will also be no income tax deduction or GST input tax credits allowable. If the cost of hosting a Christmas party is greater than $300 per employee, FBT will apply and income tax deduction and GST input tax credits will be allowable to claim.
There are no FBT implications on the portion of expenses that relate to clients, regardless of the location of the Christmas party. As such, no income tax deduction and no GST input tax credits can be claimed for the client’s portion of the Christmas party expenses.
Many employers like to give gifts to their employees during the festive season, but these may attract FBT depending on whether they qualify as entertainment or non-entertainment gifts.
Entertainment gifts include items such as tickets to live concerts, movies, holiday tickets and the like. Non-entertainment gifts include gift hampers, gift vouchers, flowers and bottles of wine.
This article was authored by Nilan Gandhi from HLB Mann Judd Brisbane.