FBT implications for Christmas parties & gifts
With the festive season in full swing, businesses are celebrating their achievements and expressing appreciation for their employees. Ensure you consider the Fringe Benefits Tax (FBT) effects to prevent unexpected FBT costs.
Christmas celebrations are a wonderful way to end the calendar year, reflect and celebrate with your team. Find out if your Christmas events and gifts may be subject to FBT. While your staff enjoy the party, make sure your festive activities make sure you aware of tax implications.
Food and drinks provided at Christmas events could fall into the entertainment benefit category which may attract FBT based on several factors. These include:
- Location of the Party: Whether it is held on-site or off-site.
- Timing of the Party: If it’s during normal business hours or outside these hours.
- Cost Per Head: The total expenditure per attendee.
- Types of Attendees: Whether only employees, clients, or family members are present.
Parties held on business premises during ordinary hours of work
If your Christmas party is held on the business premises during a normal working day, no FBT is payable for food and drinks. This constitutes an exempt property benefit, rendering the entire cost of the party FBT exempt.
However, this concession applies exclusively to food and drink provided to employees. If food and drinks are provided to an employee’s associate (like family members), this portion will not be exempt and may attract FBT.
This exemption can only apply to property consumed on premises and other types of benefits may be subject to FBT (e.g. it will not apply to the cost of performers).
Parties not held on business premises or outside ordinary hours of work
For parties held off-site (such as in a restaurant) or outside regular business hours, the minor benefit exemption might apply.
To be eligible for this exemption, broadly the cost per person (inclusive of GST) must be less than $300, and the benefit should be provided on an irregular and infrequent basis.
Income tax-exempt entities – special considerations
Entities like government departments, universities, and some schools, which are exempt from Income Tax, face more stringent FBT rules for entertainment as the exemptions described above (i.e. exempt property benefit and minor benefits exemptions) are not available. For these organisations, the entire cost of food and drinks will attract FBT unless a particular exclusion applies such as:
- it qualifies as sustenance
- light refreshments that is incidental to the provision of entertainment to outsiders or
- it is provided as part of your hospitality business.
In addition, income tax exempt entities may utilise other concessions such as the 50/50 method to reduce the overall FBT cost.
Restrictions on concessions for tax exempt body entertainment benefits apply only to meal entertainment. Therefore, it becomes more important to determine which benefits should be considered entertainment, and/or what proportions may be subject to reportable fringe benefit rules (i.e. reportable on employee Income Statements).
For non-entertainment benefits like gifts or hampers, the ATO has confirmed that these are generally treated as separate non-associated benefits under the minor benefits exemption rule. For example, an employer can provide the following benefits and still remain within the bounds of the minor benefits exemption:
- food and drink at a Christmas Party costing $275 per person and
- a gift hamper costing $100 per person.
This seems to be a special case for Christmas gifts and events, where the minor benefits exemption and its $300 threshold can be applied separately to the gift without also considering the value of associated Christmas events.
This special treatment does not apply to the Christmas parties which could be made up of several distinct benefits in its own right (e.g. dinner and a social event or performance), These distinct benefits could be considered similar or associate benefits, and their combined costs must be considered collectively. If the combined costs are considered significant, then the minor benefits exemption is not likely to apply, Take, for instance, the expenses of a Christmas party. If the cost for food and drinks per person is $300, and the additional entertainment also amounts to $300 per head, the aggregate expense of $600 per person should be evaluated. Given this combined figure, it’s not likely that the minor benefits exemption would apply, as the total cost for these associated benefits is significant.
The minor benefits exemption is a practical way for employers to provide certain benefits without incurring FBT. To maximise this exemption, make sure you carefully plan and document the costs and frequency of these benefits to avoid doubling the cost of an event.
Get in touch with us
For personalised advice on the FBT implications for Christmas parties and gifts please contact your SW advisor.