Fringe Benefit Tax and Christmas Parties & Gifts
With Christmas not far away, businesses all around Australia will no doubt be throwing a Christmas party or giving gifts to staff as a big thank you for all their efforts during the year.
Some business owners mistakenly think that because it’s an expense to do with the business then its a tax deduction and GST claimable. But here’s a word from the Accountant – it depends!
Reason why? There is a tax out there called Fringe Benefit Tax (FBT). FBT is the ATO’s way of taxing the non-cash benefits a business may give to a past, present or future employee or their associates (family members).
We can see that the cost of throwing a Christmas party and giving gifts to staff is a Fringe Benefit because they are deriving a non-cash benefit. But the cost of the party can only be income tax deductible and GST claimable if you have paid FBT on the value of the outlay.
“What…I don’t want to pay FBT, how do I avoid it?” I hear you say. There is a property benefit exemption where the costs (such as food, beer and wine) provided at the party are exempt from FBT if they are provided on a working day, on the business premises and consumed by current employees. If family were to attend, then the minor benefit exemption can be applied as discussed below. The conclusion here will be no FBT payable with no income tax deduction available or GST claimable.
“But I’m planning on taking the staff and their partners out to a pub/restaurant – how do I avoid FBT?” So there is a minor benefits exemption under the FBT legislation. A Minor benefit is one where it:
- has a notional taxable value of less than $300 (inclusive of GST) per head
- is provided on an “infrequent” or “irregular” basis, and
- is not a reward for services.
So if your Christmas party held off premises meets those dot points, then there will be no FBT. However as there is an entertainment element the business cannot claim the cost of the food and drinks as an income tax deduction or claim the GST to the extent it did not pay FBT.
Gifts provided to employees or their associates can be split into two sections: Non Entertainment type gifts such as a Christmas Hamper, Bottle of wine, perfume, flowers, pen set etc… Or Entertainment gifts like movie tickets, tickets to a sporting event & holiday accommodation. The non entertainment gifts if classified as a minor benefit will have no FBT, be deductible for income tax and GST claimable but the entertainment gifts if classified as a minor benefit will have no FBT, be non deductible and no GST claimable. Gifts can be considered separately to the Christmas party so another $300 cap per head is available.
Finally what about Christmas gifts to clients? Well clients do not fall into the Fringe Benefits regime thank goodness. If you are planning to give a past or present client a gift it is generally an income tax deduction and GST claimable if the gift is characterised as being made for the purpose of producing future assessable income AND it is a non entertainment type gift eg: a Christmas hamper, bottle of wine, perfume, flowers, pen set etc….
Should it be an entertainment gift like for example theatre/movie tickets, tickets to a sporting event or holiday accommodation then no income tax deduction and no GST claimable.
A lot to digest there if you own a business, but don’t let that dampen your Christmas spirit!
If you feel you need more help in this area, please call Leanne Apiata from LA Accountants on 07 3155 6596.
LA Accountants Cleveland help their clients make wise financial decisions today so that they can have a better financial future.