With the festive season fast approaching, non-cash benefits such as Christmas parties and gifts are typically provided to reward employees for their efforts during the year.
However, businesses often forget the Fringe Benefit Tax (FBT) implications of providing such benefits. Appropriate planning and consideration to the provision of these benefits are crucial to mitigate the FBT exposure for your business.
The following are key considerations for businesses to assist in their end-of-year planning:
Minor Benefit Exemption
The FBT legislation contains a general exemption for minor benefits provided to employees. The Minor Benefits Exemption is available when the benefit has a value of less than $300 and is provided to an employee infrequently and on an irregular basis.
A Christmas party is an example of an infrequent and irregular event, and as long as the per head cost of the event is below $300, the Minor Benefits Exemption eliminates any FBT implications.
If the Minor Benefits Exemption applies, the benefit will be considered exempt and, as such, there will be no FBT payable and no GST input tax credit or income tax deduction will be allowable.
However, if the Minor Benefits Exemption does not apply, the cost of the Christmas party will be subject to FBT and an income tax deduction and GST input tax credit will be allowable.
Each individual benefit provided to an employee has a separate $300 threshold. For example, the cost of venue and band hire would have separate limits.
Where a business uses the 50:50 split method for calculating FBT on meal entertainment benefits, they will not be able to use the Minor Benefits Exemption. FBT calculated under the 50:50 split method will also include entertainment expenses for clients.
Party on business premises
If the Christmas party is held on the business’ premises on a regular workday, expenses such as food and drink provided to employees will be exempt from FBT. However, these expenses will not be an allowable deduction for the business for income tax purposes nor will a GST input tax credit be claimable. There is no limit on the dollar value of food and drinks consumed by employees at Christmas parties held on a business’ premises.
Where other forms of entertainment are provided at an on-premises Christmas party, such as a band, this will not be exempt unless the total cost of the other entertainment is less than $300 per employee.
If an employee’s family member is invited to attend the Christmas party and the total cost per head is less than $300, FBT will not apply however where the cost is $300 or more per head, FBT will apply.
Party off business premises
If a Christmas party is held at an off-site venue, such as a restaurant, the party will be exempt from FBT if the total cost per head is less than $300 (this includes employee family members).
Employers may provide Christmas gifts to their employees. Where these gifts constitute entertainment, FBT will be payable if they are valued at $300 or more. Entertainment gifts include tickets to concerts, movies, holiday vouchers and similar items. Gifts that will not be considered entertainment include gift vouchers, hampers, bottles of wine and flowers.
All businesses and their employees should be able to celebrate and enjoy end-of-year festivities, and with careful tax planning, unnecessary FBT exposure can be avoided.
Article authored by Nilan Gandhi, Tax Supervisor, HLB Mann Judd Brisbane. This article was first published in the Summer 2022-23 issue of Financial Times.