With Christmas approaching, you may be planning a party or similar event for your employees. This article looks at the tax implications of having a Christmas party (on or off-site) and also giving Christmas gifts to employees (including working directors) and contractors.
Employers have been reminded by the ATO to consider the fringe benefits tax (FBT) implications of any party or other event. These will depend on:
- The amount you spend on each employee;
- The date and location of the event;
- The value and type of gifts provided; and
- Who attends – are partners, clients, or suppliers also invited?
Keep all records pertaining to the entertainment-related fringe benefits you provide, including how you calculated the taxable value of the benefits.
The examples below assume that the business has not chosen to use the ’50-50 split’ or ’12 week register’ methods for FBT purposes.
Christmas Parties
Christmas parties are considered “entertainment benefits,” and if the expenditure is for employees or their associates attending the function, the expenses may be subject to fringe benefits tax (FBT), unless an exemption (e.g., the “minor benefits” exemption) applies.
A minor benefit is one that is given to an employee or an associate (e.g., spouse) on a “infrequent” or “irregular” basis, is not a reward for services, and costs less than $300 (inclusive of GST) “per benefit.”
Unless they are subject to FBT, entertainment expenses are not tax deductible. This means that where the minor benefit FBT exemption applies, expenses incurred in providing a Christmas party are not generally deductible.
CHRISTMAS PARTY HELD ON THE BUSINESS PREMISES ON A WORKING DAY
SCENARIO
TAX IMPLICATIONS
Current employee attendees only
*No FBT as it is an exempt property benefit regardless of the cost
*No tax deduction
*No GST credits
Current employees and their associates attendee at a cost of $180 per head to the employer
*For employees – No FBT as it is an exempt property benefit.
No tax deduction and no GST credits
*For associates – No FBT as the GST inclusive cost is less than $300 per head (minor benefits exemption).
No tax deduction
and no GSt credits
Current employees, their associates and some clients attendee at a cost of $365 per head to the employer
*For employees – No FBT as it is an exempt property benefit.
No tax deduction and no GST credits
*For associates – FBT applies as the GST inclusive cost per head is more than $300.
Claim tax deduction and GST credits
*For clients – no FBT, no income tax dedution and no GST credits
CHRISTMAS PARTY HELD OFF THE BUSINESS PREMISES
SCENARIO
TAX IMPLICATIONS
Current employees only attendee at a cost to the employer of $195 per person
*No FBT as the GST inclusive cost is less than $300 per head (where the minor benefits exemption applies).
*No tax deductions and no GST credits
Current employees and their associates attendee at a cost to the employer of $195 per person
*For employees & associates – FBT applies as the GST inclusive cost is more that $300.
*Claim tax deduction & GST credits
*For client – no FBT, no income tax deduction and no GST credits
Current employees, their associates and clients attendee at a cost to the employer of $365 per person
*For employees & Associates – FBT applies as the GST inclusive cost is more than $300
*Claim tax deduction & GST credits
*For clients – no FBT, no income tax deduction and no GST credits
Current employees and their associates attendee at a cost to the employer of $195 per person.
Employees also provided with a hamper (non-entertainment gift) costing $150 per person
*Party costs – no FBT (where the minor benefits exemption applies), no tax deduction and no GST credits
*Hamper costs – no FBT (where the minor benefits exemption applies), claim tax deduction and GST credits
* Non-entertainment benefits, such as a hamper, provided to employees at the Christmas party are considered separately when applying for the $300 minor benefits exemption. Despite the fact that the total cost per person exceeds $300, each benefit should be considered separately under the minor benefits exemption.
Providing gifts
TYPE OF GIFT
GIFTS TO EMPLOYEES AND THEIR FAMILY
GIFTS TO CLIENTS, SUPPLIERS, CONSULTANTS AND CONTRACTORS, ETC.
NON-ENTERTAINMENT GIFTS
Christmas Hamper
Bottle of wine or spirits
Gift vouchers
Flowers
Other similar types of gifts
Subject to FBT unless considered a minor benefit
Minor benefit is a gift costing less than $300 (GST inclusive) per person and provided infrequently
Gifts GST inclusive cost $250 per
person
No FBT, claim tax deduction and GSt credits
Gifts GSt inclusive cost $320 per person
FBT applies, claim tax deduction and GST credits
No FBT, claim tax deduction and GST credits
No FBT, claim tax deduction and GST credits
ENTERTAINMENT GIFTS
Theatre or musical tickets
Movie tickets
Ticket to sporting events
Flights and accommodation for holiday
Membership to a club
Subject to FBT unless considered a minor benefit
Minor benefit is a gift costing less than $300 (GST inclusive) per person and provided infrequently
Gifts GST inclusive cost $250 per
person
No FBT, claim tax deduction and GSt credits
Gifts GSt inclusive cost $320 per person
FBT applies, claim tax deduction and GST credits
No FBT, claim tax deduction and GST credits
No FBT, claim tax deduction and GST credits
This is only general advice, it doesn’t take into account your financial situation, needs, or goals. You should consider your own circumstances or seek expert counsel from your accountants before making any decisions based on this article. If you require assistance with FBT implications, get in touch with Fullstack Advisory.
