It’s that time of year again!
Holiday cheer is just around the corner, so you are probably thinking hard about your end-of-year celebrations.
Christmas parties can be a heap of fun on the day (maybe not so fun the day after!). But they can be a huge headache if you don’t consider the FBT implications when planning.
Luckily, we are here to help you avoid headaches on the accounting front.
We can’t make any promises for preventing headaches in other areas though!
Let’s explore how FBT can impact your party plans and what you need to be mindful of this holiday season.
Fringe Benefits Tax and Christmas Parties
Fringe Benefit Tax, or FBT, is a tax that covers any fringe benefits your past, current and future employees (along with their spouses and children) might receive from their employer – ie. you!
Fringe benefits don’t normally come in the form of money. Rather, they are perks or forms of compensation provided to the team in addition to salary or wages. Often used to attract, motivate or retain top talent and hard workers, fringe benefits can be anything from a lunch to a gym membership or fancy party.
Because your Christmas party is the ideal way to celebrate and reward your team at the end of the year, it sits firmly in the middle of the fringe benefit category!
Will FBT Apply To Your Celebration?
The short answer: sometimes yes, sometimes no. Sounds clear as mud, doesn’t it? Digging deeper into the question of whether FBT applies to your specific Christmas party plans depends on the who, where, when and what of your event. Not all end-of-year celebrations or gifts will attract FBT. But it is good to be mindful of the aspects that do.
FBT generally applies when entertainment benefits are provided to employees or their associates (such as partners or family members), particularly when the cost is significant or when the event is held offsite.
- Christmas Parties held Onsite – If you host your Christmas party in the office on a working day, within working hours, then FBT is unlikely to apply to the food and drink. Taxi travel that starts or finishes at an employee’s place of work is also exempt from FBT – helpful if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer.
- Christmas Parties held Offsite – If you host your Christmas party outside of the office, including team events, golf days etc FBT will likely apply to the cost of entertaining your employees unless the cost per head falls under $300.
But, if you do not incur FBT, you cannot claim GST credits or a tax deduction for the Christmas party expense.
Simply throwing a party does not automatically mean you will be liable for FBT. However, it is vital to structure and document your event appropriately so you don’t end up with unexpected tax costs.
Does FBT Apply To Staff Gifts??
Let’s talk staff gifts now – can you purchase these without attracting FBT? Well, if you keep the gifts spontaneous, ad hoc, and below $300 each, then they will generally meet the FBT minor benefit category. Things like ongoing gym memberships or giving the same person several of the same gift that adds up to $300 or more are no-gos if you want to avoid FBT, as are things like restaurant vouchers.
What About Client Gifts?
Client gifts don’t tend to attract FBT as they are considered to be part of the cost of doing business. Plus, clients are not employees or contractors, so they can’t receive a fringe benefit. Client gifts can attract other kinds of tax though, so it is important to consider the other tax rules. The entertainment category is always a danger area, so try to avoid things like event tickets or restaurant vouchers as these are not deductible.
Are Client Lunches Tax Deductible?
Christmas is the ideal time for long lunches and generosity. Unfortunately, the ATO are not quite as generous as you’d like them to be! Regardless of whether it’s Christmas or any other time of the year, the cost of entertaining your clients – food, drink or other entertainment – is not deductible. So, keep this in mind before spending up large!
Things To Be Mindful Of When Planning
When you are planning your end-of-year celebrations, these are the FBT areas to be mindful of:
- Venue and Timing: The easiest way to avoid unnecessary FBT is to hold your celebrations on-site at your business premises during working hours. Off-site venues bring an added risk.
- Guests: Different rules apply to different guests. Employees are treated differently from clients. Generally, FBT does not apply to client gifts or benefits, but then you may need to worry about the rules around tax deductibility.
- Cost per head: This is vitally important if you want to take advantage of the minor benefit exemption, as it often hinges on the value of the benefit being under $300 per person. Exceeding that value might trigger FBT.
- Recordkeeping: Ensure you maintain detailed documentation about who attended, the cost per guest, when and where the event was held, and what benefits were provided. Good records are essential for your own purposes, but also if the ATO reviews or audits your business.
- Tax Deductibility: FBT and tax deductibility are linked, but each follows distinct rules. While some costs may be exempt from FBT, they may not necessarily be tax-deductible, especially if they fall in the entertainment category.
Calling In The Experts
Festive celebrations are fun, but the tax rules around them are not! That’s why having the support of a skilled accountant who understands FBT, tax deductions, and the intricacies of employee benefits is a smart move.
The expert team here at Cadenze can help you:
- Interpret the ATO’s fringe benefit rules and how they apply to your business specifically
- Help you decide the best way to celebrate the end of the year without huge tax or FBT implications
- Advise on the records and compliance you should keep to meet the ATO’s requirements
This holiday season, we’d love to help you reward your team and celebrate the successes of the year without any nasty tax surprises. It’s all about planning upfront.
If you’d like advice on an FBT-friendly Christmas party and gift strategy for your team, then get in touch with us today.