With less than 10 days on the Christmas countdown, employers will be planning their end of year festivities. It is easy to get lost in the excitement of party planning and gift-giving, but it’s vital to consider the tax implications to avoid waking up with a nasty FBT hangover come 31 March.
Ask these four questions in the planning stage so you can take advantage of available FBT exemptions.
1.How hard will you be rocking around the Christmas tree?
There is a minor benefit exemption for FBT which has a threshold of $300. If you can keep the cost of your party under $300 per employee, you may be exempt from FBT. Keep in mind there are other conditions but must be met to claim this exemption, however, abiding by this threshold will generally mean no FBT will be payable. If an election has been made to use the 50:50 split method for meal entertainment benefits (i.e. food and drink at the party), this exemption is not available.
2. Who is on the tax “naughty” and “nice” list?
Employees may choose to bring their spouses, or employers may invite clients to these parties. The minor benefit exemption is available for spouses of employees and is considered separately to the employee themselves. No FBT is payable on benefits provided to clients attending as they are not employees, and no tax deduction is available on these costs as it is considered entertainment.
3. Where will you be jingle bell rocking?
If you choose to hold the party at your workplace, there are two exemptions available:
Food and Drink
Provided that the food and drinks are offered to current employees and consumed on a working day at work premises, these amounts will be exempt from FBT regardless of whether they exceed $300 per head. This does not apply to spouses as they are not employees.
There is a specific FBT exemption that allows for the provision of taxi travel for employees directly from work to their home.
4. Is Santa Claus coming to town?
You may want to reward your employees for a job well done this year, however, a Santa Claus that is too lavish with his gifts might trigger unwanted FBT. The minor benefit exemption is also applicable here, so keeping each gift under $300 will exempt the gift from FBT. Even though the gifts are being provided at the party, the party and the gift are considered separate benefits (although are ‘associated’), and the $300 threshold is assessed separately for both.
Remember that any benefits provided to employees that are not liable for FBT are not able to be claimed as a deduction for income tax. Additionally, you cannot claim GST credits for the cost of providing FBT exempt benefits.
Happy holidays and party responsibly (for tax purposes)!
If you have any questions in relation to the FBT implications of your festivities or FBT in general, please get in touch with your ESV engagement partner.