As we head into the festive season, many workplaces are beginning to focus on their Christmas parties. If you’re planning a celebration for your clients or staff, here’s a quick rundown on the tax implications associated with this form of entertainment.
Is the work Christmas Party subject to Fringe Benefits Tax?
A fringe benefit is a benefit provided to an employee by an employer or an associate of the employer. Based on this definition alone, a Christmas party would subject to FBT. However two important exemptions that apply when:
- All Christmas party food & drink is provided by the employer, consumed by a current employee and held at the employer’s premises on a business day
OR WHEN - The cost of the party for each employee IS less than $300.
If the Christmas party meets either of these definitions, there are no FBT consequences and employers will not have to pay FBT.
How to calculate FBT if it applies
If the exemptions do not apply, there are two methods used to calculate FBT for Christmas parties:
- 50/50 split method: 50% of the total expenditure on food and drink provided at the party will be subject to FBT and also tax deductible, irrespective of who attends or where the party is held
OR - Actual entertainment expenditure method: FBT will only be payable on meal entertainment provided to employees and will disregard costs relating to non-employees such as clients, suppliers and contractors. A GST credit and income tax deduction will be available for all employee related costs only.
Depending on the circumstances, one or the other may be more favorable.
Are employee gifts subject to FBT?
For tax purposes, gifts provided by employers are split into two categories:
- Non-entertainment gifts: Christmas hampers, bottle of wine, gift vouchers, flowers etc
- Entertainment gifts: Movie tickets, concert tickets, holiday accommodation etc.
Employee gifts less than $300 (GST inclusive) and provided on an infrequent basis are not subject to FBT. All gifts to non-employees (regardless of cost) such as clients, suppliers and contractors will not be subject to FBT either. It is also important to note that non-entertainment gifts may also allow for an income tax deduction and GST credit.
Accru wishes your business and team a very happy Christmas and New Year, and a tax-effective one!
We’re experts on all aspects of Fringe Benefits Tax, so please contact your local Accru office should you have any specific questions regarding the implications of FBT on your business.
By Mark Ryan, Accru Rawsons Brisbane