The silly season is well and truly upon us which, for business owners, tends to bring a lot of confusion about FBT and business Christmas related expenses.
In this blog, Debbie Hoffman CPA at Stellar Accounts helps set the record straight on your FBT obligations and expenditure thresholds which may influence your decisions about where to hold your Christmas parties, how much to spend, and what to gift employees as thank you for their hard work throughout the year.
Stellar Accounts is Australia’s premier online accounting and bookkeeping service with flexible, affordable packages no matter what industry you work in. Run by a highly experienced CPA, clients can conveniently connect with their accountant online. We help eliminate the stress of keeping your business financials in order – including your tax obligations around Christmas!Got a question? Enquire online or call us on 0428 887 104.
- Christmas Parties and Fringe Benefits Tax
Fringe benefits provided by you, an associate or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.
What Christmas Party costs don’t attract FBT?
- The costs (such as food and drink) associated with Christmas parties are EXEMPT from FBT if they are provided on a working day on your business premises and consumed by current employees. However, a taxable fringe benefit will arise for an employee’s associate who attends the party (if not otherwise exempt under the minor benefits exemption – which we explain a little further down).
- Where you provide a Christmas party for your employees and their partners you don’t add the costs together, but instead look at the cost of the benefit provided to each individual person. Each benefit that is less than $300 may be considered a minor benefit and exempt, provided certain conditions are met.
What to be on the lookout for?
- The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
- The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) can’t be claimed as an income tax deduction.
- The costs of entertaining clients are not subject to FBT and are not income tax deductible
Gift Cards for Employees
Can I give my employees a gift card at Christmas time and claim this as a tax deduction?
The short is yes but only if they are under $300 and are classed as a “non-entertainment gift”, that is, gift cards from Coles, Woolworths and generic Visa gift cards.
If you purchase gift cards for the movies or restaurants, for example, these are considered entertainment gift cards.
The other benefit of providing anon-entertainment gift card rather than a cash bonus is you avoid having to pay PAYG on the bonus payment.
What you need to know about Christmas gifts.
- Non-entertainment gifts (e.g. a bottle of wine) are treated differently to entertainment gifts(e.g. holidays, tickets to a show or sporting event). For entertainment gifts,if the amount you spend is $300 or less per employee, the expense will be exempt from FBT. However, no tax deduction or GST may be claimed.
- A fringe benefit that has a value of $300 or less is called a Minor FBT exempt benefit. Once the amount goes over $300 – that is when it becomes subject to FBT, but you can claim a tax deduction and the GST credits on the expense.
- The other main criteria of minor FBT exempt benefits is that the benefit is provided infrequently and irregularly.
- Non entertainment gifts are exempt from FBT if under $300 per person and a tax deduction can be claimed as well as any GST credits.
- Once non-entertainment gifts exceed $300, FBT is payable. However, you continue to be able to claim a tax deduction on the full amount and the GST credits.
As you may have gathered from the above, entertainment expenses are not tax deductible or claimable for GST purposes, unless you also pay FBT.
The ATO states the provision of entertainment includes:
- Entertainment by way of food, drink or recreation
- Accommodation or travel in connection with, or to facilitate the provision of, such entertainment.
- Recreation activities including amusement, sport and similar leisure-time pursuits and includes recreation and amusement in vehicles, vessels or aircraft(for example, joy flights, sightseeing tours, harbour cruises).
There are some exemptions to these rules though as shown in the case study below.
Example Case Study
employer provided drinks and a buffet meal for 10 employees and their spouses
on business premises. The cost was $500. The cost of the entertainment provided
to employees was $250; this is exempt from FBT. The cost related to entertainment
of the associates ($250) is not exempt from FBT.
In some case the Minor Benefit Exemption may apply – for expenses under $300/person.
FBT and Business Christmas Related Expenses
We know it can be tricky navigating your FBT obligations around business Christmas related expenses.
If you are unsure how or if this relates to your Christmas party or Christmas spending have a chat to us at Stellar Accounts for specific advice and assistance.
Call us on 0428 887 104 today or enquire online here.
Stellar Accounts is Brisbane’s leading small and new business accounting firm. We have a reputation for simplifying your accounting, tax and bookkeeping needs so you don’t need to stress or worry.
With more than 20 years’ experience across a wide array of industries – our clients (typically small and medium sized businesses) – gain a distinct advantage over their competitors because we keep them in the loop of the latest information and regulatory requirements. Call us on 0428 887 104.
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