Fringe Benefit Tax and Christmas parties
Q: My company is going to hold Christmas party this year. How to determine the FBT implications and how to treat this cost? Is this tax deductible?
We will discuss the treatment for a company that is not using 50-50 split method for meal entertainment below. We need to determine whether there are FBT implications arising from a Christmas party.
Step 1 – we need to consider if it is tax deductible.
Tax deductibility of a Christmas party
Rules: The cost of providing a Christmas party is income tax deductible only to the extent that it is subjected to FBT. This means if you pay the FBT, to the extent the cost is subjected to FBT, the income tax deductible.
This means any costs that are exempt from FBT (i.e. exempt minor benefits and exempt property benefits) are not tax deductible.
e.g. the costs of entertaining client are not subject to FBT and are not income tax deductible
Step 2 – we need to understand Exempt property benefits & Exempt minor benefit
|Exempt property benefits||FBT exempt if the costs related to the Christmas party are provided on a working day on your business premises and consumed by the current employees.|
For associates – property benefit exemption is not available
|Minor benefits||applies where amount per employee is less than $300 (GST inclusive) and it is ‘unreasonable’ to treat the benefit as a fringe benefit ; benefit must be provided on a basis that is minor, infrequent and irregular ; divide meal entertainment expenditure by total attendees (not no. of employees attending)|
Generally, if entertainment provided is ‘meal entertainment’, we can elect to use one of the three methods for calculating taxable value: 1) Actual method 2) 50/50 split method 3) 12-week register
Step 3 – we need to consider if the Christmas party is held on or off the business premises
- Christmas party held off business premises
Scenario 1: Company A decides to hold its Christmas function at a restaurant on a working day before Christmas. The company will provide meals, drinks, and wine
|Current employees only attend at a cost of $195 per head||There are no FBT implications as the minor benefits exemptions applies|
|Current employees and their associates attend at a cost of $180 per head||There are no FBT implications as the minor benefits exemptions applies|
|Current employees, their associates and clients attend at a cost of $365 per head||For employees – a FBT will arise|
For associates – a FBT will arise
For clients – there is no FBT and the cost of providing the entertainment is not income tax deductible
- Christmas party held on the business premises
Rules: For employee – an exempt benefit; For associates – not exempt benefit unless it is a minor benefit
Scenario 2: Company B decides to have hold a Christmas party on its business premises. The company will provide meals, drinks, and wine.
|Current employee only attend||No FBT implications; It is an exempt property benefit.|
|Current employees and their associates attend at a cost of $195 per head||For employee – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply|
For associates – there are no FBT implications as the minor benefit exemption applies
|Current employees and their associates attend at a cost of $370 per head||For employee- No FBT as it is an exempt property benefit.|
For associates – a taxable fringe benefit will arise as the value is equal or more than $300.
For clients – there is no FBT payable and no income tax deduction
Step 4 – Let’s see how to apply this
|TEST||An employee‑only annual Christmas party at a local club. The all‑inclusive price works out at $280 per employee|
|Step 1 – Is this entertainment ?||Yes – entertainment includes the provision of food, drink and recreation. This benefit is provided in an entertainment context.|
|Step 2 – Is this a ‘fringe benefit’ as defined in the FBTAA 1986 ?||No – This is provided off the business premise; but this is an ‘exempt benefit’ under S.58P FBTAA 1986 (a minor, infrequent benefit valued at less than $300 inclusive of GST). An ‘exempt benefit’ is excluded from the definition of ‘fringe benefit’|
Fringe Benefit Tax and Christmas gift
Christmas Gift – A Christmas gift or hamper provided to an employee that meets the conditions of minor benefits exemption rule and is less than $300 will not attract any FBT.
|FBT exemptions in Division 13 FBTAA1986|
|Example- inexpensive Christmas gifts (e.g. bottle of wine or perfume)||· No FBT to the employer (exempt benefit)|
· Deductible to the employer (S.8-1 ITAA 1997) – gifts are generally not the provision of entertainment, so Division 32 ITAA 1997 does not apply.
|Entertainment Matrix –|
|Situation||Classification||FBT treatment||Income Tax treatment||GST treatment|
|Staff Christmas gifts ($250 gift voucher)||Not Entertainment||Exempt minor benefit||Tax deductible||Input tax credit available|
|Staff Christmas gifts ($300 gift voucher)||Not Entertainment||Taxable benefit||Tax deductible||Input tax credit available|