The application of fringe benefits tax means that it’s more tax effective to provide staff with non-entertainment gifts at Christmas rather than hosting a party.
In Part 1 we look at the work Christmas party.
Here we examine some of the most common benefits provided at Christmas and the various income tax, GST and FBT implications. It is assumed that the business is not electing to use either the 50–50 split method or the 12 week register method for calculating the taxable value of meal entertainment expenditure.
Christmas parties constitute "entertainment benefits" and as such are subject to FBT unless specifically exempt, or the "minor benefits" exemption apples. A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.
(i) On-site Christmas party
Holding the Christmas party on the business premises on a working day is usually the most tax effective. Expenses such as food and drink (including alcohol), are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed.
However, where employees' families (i.e. associates) also attend and the cost attributable to each associate is $300 or more inclusive of GST, there is FBT on the associates portion of food and drink, and a tax deduction and GST credit can be claimed on that portion. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.
Where the Christmas party is held on the business premises on a working day with only employees and clients attending, and only finger food or a light meal and no alcohol is provided, then the entire cost is tax deductible. There is no FBT and a GST credit can be claimed on the entire cost.
(ii) Off-site Christmas party
Christmas parties held off the business premises are exempt from FBT where the cost for the employee and their associate is each less than $300 inclusive of GST but no tax deduction or GST credit can be claimed. The cost of clients attending the party is not subject to FBT, and no tax deduction or GST credit can be claimed on their portion of the cost.
Certain benefits provided to employees at the Christmas function are considered separately when applying the $300 minor benefits exemption.
For example, a Christmas party is held at a restaurant costing $220 per head, and at the same time employees are provided with a Christmas hamper (considered a non-entertainment gift), costing $150. Although the total cost is more than $300, the provision of both benefits will usually be exempt from FBT under the minor benefits exemption.
For the Christmas party expenses, the business will not be entitled to claim either a tax deduction or a GST credit. However, a tax deduction and GST credit claim should be available on the cost of the hamper as this is not considered to be “entertainment”.
Inviting the family
Employees can make the Christmas party a family affair. Not only will it be a more inclusive experience, the ATO says the $300 minor benefits threshold applies per-attendee, not per-employee, which potentially means more FBT-free benefits.
Taxi travel to and from the party
While taxi travel provided to employee would generally attract FBT there are two specific exceptions:
1. When the trip either starts or ends at the employee’s place of work, or
2. Where the travel is required because of sickness or injury to the employee.
Where the employer pays for an employee’s taxi travel home from the Christmas party, and the party is held on the business premises, no FBT will apply and the cost of the taxi fare will be tax-deductible.
Where the party is held off the premises and the employer pays for a taxi to the venue, and then also pays for the employee to take a taxi home, only the first trip will be FBT exempt under the provision dealing with taxi travel.
In that scenario, if the employee does not regularly receive taxi travel paid for by the business, however, then the second trip might still be exempt as a minor benefit (assuming the cost is also less than $300).
As the provision of meal entertainment is defined to include “…travel in connection with …the provision of entertainment by way of food and drink” then the business would be unable to claim a tax deduction for any taxi travel that is FBT exempt as a minor benefit.
This article was reviewed by Peter Bembrick, tax consulting partner at HLB Mann Judd, and is provided courtesy of the small business tax portal www.australianbiz.com.au.