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Fringe benefits tax

FBT and the Christmas party

Exemption negates deduction | Where do taxis stand?  Quick tax guide


Apart from giving businesses a chance to thank their employees for a job well done over a difficult year, end of year Christmas celebrations are also of course a chance to get everyone together for some fun and socialising. But while you should feel free to pop a champagne cork or three for employees, make sure that you don't get the tax hangover.

As with any benefit that a business provides to staff that is outside the safe definition of 'salary', the question of whether it is a fringe benefit (and therefore taxable) or not will need to be addressed.

Not that the taxman doesn't know how to have fun. The Tax Office may be prudent, but there is still some wriggle room to let your hair down. Christmas-time entertainment up to the value of $300 for each employee is generally exempt from FBT. So throwing a party where the cost per head is less than $300 should escape the tax. This should also be the case where an employee's spouse attends the function.

The Tax Office has stated that there are no different FBT rules that apply to Christmas entertainment, and says that they are part of the general FBT rules and come under the 'minor benefits' umbrella. This allows a $300 limit to 'incidental' benefits (that are not provided regularly) to be FBT free.

There seems to be, however, a Santa-inspired tweak to how the rule is applied, as the minor benefits threshold of $300 applies to each benefit provided, not to a total value of 'associated benefits', which used to be the case.

So if, as a generous employer, you also give a gift to everyone, the party and the gift are considered separately for FBT. If each is less than $300, they are both generally FBT free.

Note that there are three different ways in which entertainment may be treated for FBT purposes; two of these alternatives are the '50/50 split method' and the '12 week register method', and where they are adopted, the treatment of Christmas party expenditure will be different to what is described above (see Member-only content for details).

Exemption negates deduction
But remember that if a benefit is exempt from FBT, you cannot claim it as an income tax deduction, nor can you claim any GST credits arising from these 'supplies'.

The safest option FBT-wise would be to hold the Christmas party on the business premises on a working day, as providing the food and drinks will be FBT free, if it's only employees who attend.

If spouses or partners are invited (the law refers to them as 'associates') the cost will still be FBT free if less than $300, and if bona fide clients attend there is no FBT anyway. If the party is held off-premises, at say a restaurant or pub, the $300 limit applies to both employees and associates, subject to the application of the 50/50 split or 12 week register methods referred to above.

Where do taxis stand?
For an employer thinking of paying for this travel option for staff, the important consideration in regard to this will be venue.

If the taxi travel is from home to an entertainment venue (that is not the workplace) and home again, the Tax Office says that this is all part of the fun and that the fare has to be included in the cost-per-head limit, with the total cost being under the $300 minor benefit threshold to escape being taxed. But if the cab drives from home to a function held at the workplace, and/or from the workplace back to home after the festivities, the taxi fare is exempt from FBT.

Some canny business operators have taken the convivial, and tax effective, approach of holding more than one social event over the year. It may not suit every business, but rather than have just one large bash at Christmas, a business may decide to spread the entertainment budget out to, say, an end-of-financial-year function in winter.

Dividing the party purse into two events can reduce the value of the entertainment each employee enjoys below the minor benefits limit of $300, and keeps the FBT liability of an employer to a happy minimum. It should be remembered however that to be a minor benefit it is necessary that the particular benefit (or similar benefits) be provided irregularly and infrequently.

Tax implications to employers – Festive season benefits quick tax guide

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Last reviewed 10/07/2014

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