You might not think that ‘Fringe benefits Tax’ (FBT) and ‘Christmas Parties’ have anything in common but you might be in for a surprise when it comes time to lodge your businesses tax return if you don’t.
As many businesses prepare for their annual Christmas parties and events many of our customers ask what expenses can be claimed as tax deductions, and what receipts do they need to keep to prove their claims.
The answer is not so simple. It all depends on where the Christmas event or party is held, what is consumed by your employees and what types of gifts are given as to what can be claimed. Even more, your event might incur an unknown Fringe Benefits Tax that many aren’t prepared for.
It may be best to remember the ‘300 rule’, termed as the ‘minor benefits rule’ in the eyes of the Australian Taxation Office (ATO).
A Christmas party given to an employee is considered to be a minor benefit if the cost of the party is less than $300 per employee and will not incur tax. Certain conditions must be met to satisfy this rule:
- The minor benefit means that it is infrequent
- Is not a reward for services
- The costs are $300 or less per employee including GST
- The costs of less than $300 applies to each benefit provided, and
- The Christmas party is held on the business premises or online on a normal working day
If the cost for an employee or their invited family member is greater than $300 including GST, then FBT will apply to the portion over $300. The business will also be able to claim a tax deduction and GST credit for the amount.
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The ‘300 rule’ also applies to gifts where the value is less than $300. A gift given to an employee by an employer fall under the minor benefits rule, and deductions and GST credits applied.
The good news is that the Christmas Party and the gift are considered separate costs. That effectively means that the party can be costed at $300 or less her head, and gifts costed at $300 or less per head without incurring FBT.
Pro Tax Tips: Those holding virtual or on-online Christmas parties will not be subject to FBT, but tax deductions and GST cannot be claimed. To hold your Christmas party off-premises or on-premises – that is the question because the rules slightly change. Employees and their families are subject to the FBT and minor benefits ruling. If client or associates attend, they are not subject to FBT nor are their associated costs tax deductible.
A small business holds a Christmas party on business premises and provides food, wine and beer.
| If current employees only attend… | There are no FBT implications as it is an exempt property benefit. |
| If current employees and their associates attend at a cost of $180 per head… | There are no FBT implications for employees as it is an exempt property benefit, and the minor benefit exemption could also apply* There are no FBT implications for associates as the minor benefit exemption applies. * |
| If current employees, their associates and some clients attend at a cost of $365 per head | There are no FBT implications for employees as it is an exempt property benefit A taxable fringe benefit for associates will arise as the value is equal to or more than $300 There is no FBT payable and no income tax deduction for clients. |
*Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Costs associated with Christmas parties held off business premises will incur a taxable fringe benefit for employees and associates unless the benefits are exempt minor benefits.
A small business holds a Christmas party off business premises and provides meals drinks and entertainment.
| If current employees only attend at a cost of $195 per head… | There are no FBT implications as the minor benefits exemption applies. * |
| If current employees and their associates attend at a cost of $180 per head… | There are no FBT implications as the minor benefits exemption applies. * |
| If current employees, their associates and clients attend at a cost of $365 per head… | A taxable fringe benefit will arise for employees A taxable fringe benefit will arise for associates There is no FBT payable and the cost of providing the entertainment is not income tax deductible for clients. |
*Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Pro Tax Tip: The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Gifts
The gift you give to your employees is tax deductible if it’s a once-off gift, is not classed as entertainment and is under $300. The ATO defines entertainment as providing food, drink or recreation or providing accommodation or travel in connection with the entertainment as well as the entertainment gift itself such as providing tickets to a sporting event, movie, theatre, cruise, airline tickets, or sporting games.
Gifts that can be deducted are:
- Wine or champagne
- Flowers
- Gift vouchers for groceries, health and wellness, books
- Hampers
- Skincare / beauty products
- Perfumes
- Computers and equipment
- Plants
- Jewellery
Pro Tax Tip: Gifts to clients are generally tax deductible if it can lead to future income such as from return business or gaining referrals, however spending should be kept to a reasonable level.
When it comes to claiming any tax deductions and working out FBT, keep all receipts, tax invoices, contracts and financial institution statements to prove your claims.
If you’re confused or want some tax advice when it comes to planning out your businesses Christmas, an ITP tax accountant can help you crunch some numbers to avoid those unexpected taxes popping up way after Christmas has long been forgotten.