How to party smart this Christmas (and avoid being stung by FBT afterwards)
With Christmas fast approaching, a lot of business owners are starting to think (or already thinking!) about how they are going to celebrate Christmas with their employees and clients.
While it is a festive season where you normally spend a little more in treating your employees, their families and clients with good food, wine and some activities, enjoying the time and having some fun, business owners may unknowingly provide Fringe Benefits where it may end up costing you more.
What is Fringe Benefit Tax?
According to the ATO, Fringe benefits tax (FBT) is a tax employers pay on certain benefits they provide to their employees – including their employees’ family or other associates. FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided. The FBT year runs from 1 April to 31 March. (https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/ )
There are many types of FBT (e.g. car FBT, expense payment FBT, car parking FBT to name a few) but in this article we focus on the expense transactions that may trigger a liability FBT that usually happens during Christmas, as well as how to potentially avoid falling into the FBT trap (FBT exemptions).
So what activities may trigger FBT liability?
Below are a few examples where FBT liability is triggered:
- Christmas party for staff and spouse, held outside of office, costing $360 per head – FBT applies to both staff and spouse.
- Christmas party for staff and spouse, held inside the office, costing $360 per head – FBT applies to spouse only
- Christmas hamper given to staff and spouse, costing $320 per head – FBT applies
- Luxurious local wine tasting tour with staff, spouse and client, costing $320 per head – FBT applies to staff and spouse, but not client
As you can see, these are common activities that most businesses may do during Christmas, therefore identifying them beforehand will help you decide:
- who to invite,
- when to host,
- where to hold the party
- how much to spend and
- what activities to do
What are some common FBT exemptions available to businesses?
There are two main exemptions available for businesses to apply.
Exempt property benefits
This is an exemption to the cost of food and drinks that as long as the food and drinks are provided to current employees on the business premises, on a work day, the cost of the food and drinks are exempt from FBT.
Minor benefits exemption
This exemption applies to employees and their spouse, where the cost of the party (per head) is less than $300. More conditions are required to be met for the exemption to apply to employees (e.g. the frequency and total taxable value provided.) It is worth noting that the $300 exemption applies to each benefit, and not the total value of all benefits.
e.g. where a business hosts a Christmas party that costs less than $300 per employee, they can also provide a gift to these employees costing not more than $300 each, and both transactions will not attract FBT.
What about income tax deductibility and claiming GST credits?
The general rule is that what attracts FBT will be income tax deductible, and GST credits can be claimed (for a GST registered entity). What is exempt from FBT attracts no income tax deductions nor GST credits.
It is important to know that the cost of entertaining clients is not subject to FBT, and is not tax deductible. However the cost incurred by the employee entertaining the client may be subject to FBT, particularly where entertaining clients is conducted regularly.
How can Aston help?
As the information provided in this article are general advice only, and it does not take into account your circumstances, it is advisable to consult with us to provide you with specific advice catered for your business.