FBT and Your Christmas Party
You have most likely already booked in your business's Christmas party and this year is the first year in a few that we can all get together to celebrate any year in business. You are probably also looking for the perfect gifts for your team. The last thing on your mind right now is tax but as a business owner, you should get your head that there may be some Fringe Tax Benefit implications of your party and gift-giving.
What is Fringe Benefits Tax FBT?
A fringe benefit is a type of payment to employees that is an addition to their wages. FBT is paid by employers on certain benefits they give to their employees or their employees’ families or other associates. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
As per the ATO website, examples of fringe benefits include:
• Allowing an employee to use a work car for personal use
• Giving an employee a discounted loan
• Paying for an employee’s gym membership
• Providing entertainment by way of free tickets to concerts
• Reimbursing an expense incurred by an employee, such as school fees
• Giving benefits under a salary sacrifice arrangement with an employee
Employers can generally claim an income tax reduction for the cost of providing fringe benefits and for the fringe benefits tax they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
FBT and your Christmas Party
The FBT legislation doesn’t specifically provide a category for Christmas Parties but for events in general, but it will usually be the biggest event your business provides to the team during the year. With the end of the year quickly approaching, many businesses are already organising Christmas gifts and planning their end-of-year Christmas party for their team. With the COVID-19 lockdowns behind us, many businesses will be planning, and spending more than usual on some big events to celebrate, so here are some guidelines from the ATO to keep in mind when planning your Christmas party.
Exempt property benefits
The costs of food and drinks associated with Christmas parties are exempt from FBT if they are provided on a working day, on your business premises, and consumed by current employees. The property benefit is only available for employees, not associates.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
Gifts provided to employees at a Christmas party
The provision of a Christmas gift to an employee may be a minor benefit that is an exempt benefit when the value of the gift is less than $300.
The impact of FBT on your Christmas party may be significant depending on the size of your business (or party) so if you are not sure of the FBT implications you should contact your Accountant before you start making plans.