When planning your Christmas party list and checking it twice, it is important to know the true cost of Christmas parties and gifts, and so be sure to plan ahead and consider the Fringe Benefits Tax (“FBT”) implications of providing parties and gifts.
We don’t want to be the party police, however FBT can be a very expensive tax, and depending on the nature of the expense and valuation method used, FBT can often equate to tax almost equivalent to the cost of the benefits provided to employees (i.e. A gift of $500, results in a $489 FBT liability).
To determine the FBT implications of Christmas parties, it is important to consider:
o how much it costs
o where and when it is held
o who is invited
Each of the above impact how FBT is calculated, and can also have GST and income tax implications.
A party provided to employees on business premises is exempt from FBT regardless of the cost per employee.
The cost of associates of employees (spouses and children) attending the party on the business premises is exempt from FBT providing the cost is less than $300 (GST inc) per individual.
Parties held off the business premises (a restaurant or similar venue), will be exempt from FBT if the cost per employee and associate is less than $300 (GST inc), and providing overall annual entertainment is infrequent.
The cost of clients, suppliers or contractors attending a party (on or off business premises) will not attract FBT.
Generally, where FBT applies, the entertainment expense will be tax deductible and GST credits can be claimed. Whereas if the expense is not subject to FBT, the cost will not be tax deductible and GST can not be claimed.
Christmas presents may also attract FBT, and so you’ll need to consider:
o the amount you spend
o the type of gift
o who you are giving the gift to
The merry people at the Australian Taxation Office split gifts into two categories – entertainment and non-entertainment.
Entertainment gifts are gifts considered as entertaining or recreational, being movie tickets, sporting events, travel etc.
If the gift is more than $300 (GST inc), or gifts of this nature are frequent, the cost will be subject to FBT.
If the gift is less than $300 (GST inc), and gifts of this nature are infrequent, FBT will not apply. However, the cost of the gift will not be tax deductible and GST can not be claimed.
Non-entertainment gifts include flowers, vouchers, alcohol, perfume etc.
If a non-entertainment gift is more than $300 (GST inc), or gifts of this nature are frequent, the cost will be subject to FBT.
If the gift is less than $300 (GST inc), and gifts of this nature are infrequent, FBT will not apply.
The cost of non-entertainment gifts are tax deductible irrespective of whether FBT applies, similarly GST can be claimed.
At the risk of sounding like Ebenezer Scrooge, in light of the above, the more tax effective option would be to gift non-entertainment gifts which cost less than $300 per employee.
FBT can be a complicated and expensive tax, and so don't get your tinsel in a tangle this festive season, and please contact us if you’d like to discuss the FBT implications of the cost of parties and gifts.