It is getting closer and closer to the most wonderful time of the year.  Now most of you will be lucky enough to be invited to Christmas parties and receive Christmas gifts but what about the people throwing these exciting parties and giving you those lovely gifts, how does that affect them?

Well you are in luck as we are here to help!

Firstly, you need to know that providing these events to your staff, their spouses, children and clients may actually attract Fringe Benefits Tax (‘FBT’).  When planning your Christmas Party and checking it twice, consider how much it costs, where it will be held, as a restaurant Christmas Party and a Business Premises Christmas Party are treated differently.

Holdings a Christmas Party is regarded as “Entertainment” expense which is not tax deductible.

If you are providing a Christmas Party on a working day and in your business premises which is only attended by your employees and not their associates (i.e. spouse, children etc), the costs in relation to the party being food and drink are exempt from FBT.  The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT.  The above expenses are exempt from FBT and are therefore unable to be claimed as an income tax deduction.

If the employees associates attend the Christmas Party and consume the food and drinks provided this may also fall under a minor exempt benefit which is considered to be anything under $300.  If the cost of the party for each associate of an employee is less than $300 inclusive of GST, it will be exempt from FBT.  The threshold of less than $300 applies to each benefit provided (food, drink and gifts separately) and not the total amount of associated benefits provided.

Talking about gifts, if an employer provides a gift at a Christmas Party that is also provided by the employer, each benefit being the party and the gift will be considered separately to determine if they are less than $300 in value.  If they are less than $300 in value they will both be exempt benefits.  Again as they are exempt benefits they will not be tax deductible.

Example of a Christmas Party at a business premises:

A company chooses to have a Christmas Party on its business premises on a working day and provides food, beer and wine.  If an employee attends the Christmas Party with their spouse the FBT implications are limited to costs in excess of $300 (as outlined above).  However, if the employee, their spouse and some clients attend at a cost of more than $300 per head the implications change for the spouse but stay the same for the employee.  For the spouse attending this extravagant Christmas Party a taxable fringe benefit will arise as the value is equal to or more than $300.  On this same basis the FBT implications for the client attending would be the same:  that is, no income tax deduction where there is no FBT payable.  If only employees and clients attend and the only available benefits are finger food or a light meal with no alcohol then the entire cost is tax deductible and there will be no FBT and a GST credit can be claimed.

Example of Christmas Party held off business premises:

In this scenario a company decides to have a Christmas Party at a restaurant on a working day and provides meals, drinks and entertainment.  The same implications as outlined above relate to the employee and their associate if the amount per head comes to less than $300.  If the amount is more than $300, the employee and associates will all attract a taxable fringe benefit.  For clients attending the Christmas Party which costs more than $300 per head, there would be no FBT payable and the cost of providing the entertainment is not deductible for income tax purposes.

GIFTS, GIFTS and more GIFTS!  If you are planning on giving gifts to your staff to reward them for their hard work throughout the year, then you should think about the tax consequences as we do not want the Tax Grinch to snatch these gifts away from them.  Consider giving your staff a non-entertainment gift which is exempt from FBT when the total value is less than and not equal to $300.  Non-entertainment gifts are tax deductible and the GST credit can also be claimed.  The type of gifts which are considered to be non-entertainment gifts are:  hampers, gift vouchers, beauty products, perfumes, flowers and wine.  It would be less tax effective if you are planning on providing employees with these types of gifts that are more than $300 GST inclusive.  However, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47% on the grossed-up value.

Let’s say your staff have been talking about a concert they all wanted to attend or all wanted to go and paint a “starry Night” at a wine and paint event, or go to the movies or even a short trip away, these types of gifts are categorised as “Entertainment Gifts”.  These types of gifts have different tax implications when compared with the non-entertainment gifts.  If you are planning on giving your employees and their associates these types of gifts and they are over $300 value, FBT will be payable and a tax deduction will be allowed.  If it is less than $300, there will be no FBT obligation, no tax deduction and no GST credit claimable.  The cost of gifting non-entertainment gifts to clients and suppliers does not fall within the FBT rules as they are not considered your staff.  Generally, a tax deduction and GST credit can still be claimed provided they are not excessive or overly valued.

Busy as we all are, you have thought about giving your employees a gift but have ran out of time and have opted to hand out cash bonuses instead.  These payments are treated in the same way as salary and wages.  PAYG withholding, super guarantee and payroll tax obligations will be trigged.  The ATO will treat this cash as ordinary time earnings.

FBT rules do not apply to gifts to sole traders and partners in a partnership as they cannot be employees of themselves.  Benefits given to any staff employed by the business achieve the same tax outcomes as mentioned above.

Be vigilant when providing benefits to your staff and their associates as if the value of benefits are more than $2,000 in an FBT year, you must record that amount on their payment summary.

“Tis the season to be Jolly!” so if you are still unsure about the FBT implications, please get in touch with one of us at Venta Belgarum Associates and we can all get along for a Merry Day!