If you have a business, it’s that time of year where you’re starting to think about Christmas parties and office celebrations. It’s also time as a business owner to say thank you to your employees for another year of hard work. But it’s also worth knowing what you can claim and what you can’t.
The rules can be confusing, so here are some suggestions on how to make the most of your corporate budgets this year.
There are two major things you’ll be spending money on around Christmas time at the office. One is the Christmas party, and the other is gifts for the employees. Sounds simple enough, but there are quite a few ways you may or may not be charged Fringe Benefit Tax (FBT) by the tax department if you’re not up with the rules.
Is a Christmas Party subject to FBT?
The simple answer is yes and no, as it depends on how and when you conduct the Christmas party.
Entertainment in many cases is subject to FBT, and the ATO considers a Christmas party to be ‘entertainment’. But there are a few cases where the FBT is exempt. Generally, if the Christmas party is held on a business day and the work premise and only employees attend, then it will be FBT exempt.
Another way to be free of FBT is that the cost of the food and drink consumed by the employees at the event must be less than $300 per head. However, there is no tax deduction or GST input credit claimable.
If the party is held off-site and you head to a restaurant or club, there is still no FBT payable if the costs remain under $300 per head, as this is also considered a minor benefit. Once the cost per head cost rises over the $300 threshold, however, FBT is payable for employees and any family, but not for clients attending.
Here are a couple of situations you might be in, where the line is a little vague:
- If you hold a Christmas party on a working business day at your premise and both employees and their families attend, but the cost per head is only $100 per head, there is so no FBT payable for families or friends. So, the minor benefit exemption applies but no tax deduction.
- A Christmas party is held off-site at an expensive restaurant. Employees and their families attend, but the budget blows out to $350 per head. In this case, FBT is payable in respect of the employees and their families as the minor benefits exemption will not apply, given that the benefit is more than $300/head. The cost is an allowable tax deduction.
Are Christmas gifts for employee subject to FBT?
If you’d like to give your staff Christmas presents, the easiest way to avoid the tax is to make sure the gift is under $300, including GST. This will be considered a minor benefit by the ATO.
The gifts must not be considered entertainment. Which means gifts cannot be something in the category of:
- restaurant meals
- holiday accommodation
- tickets to movies
- sporting events
Examples of non-entertainment gifts under $300 will qualify to be exempt of tax include:
- Gift Baskets
- Department store vouchers and gift cards
- Skincare or beauty products
- Sealed bottles of alcohol
If your gift meets all these criteria, it is exempt from any Fringe Benefit Tax (FBT), and you can also claim a tax deduction for it, plus the GST input tax credit if you are registered for GST.
It’s also good to be aware that you can’t use these tax rules to gift yourself a present at Christmas. If you are a sole proprietor or a partner, you can’t also be your own employee. These benefits are only for employees only.
Anthony McPhee, Principal
B.Bus (Accy) QUT | FCPA, SSA (SMSF Specialist Advisor with the SMSF Association) & Registered Tax Agent
Anthony has over 25 years accountancy, taxation and superannuation (SMSF) experience. He eagerly welcomes a challenge and his passion is in small business accounting, superannuation, consulting and taxation advice. He provides real business benefits for each of his clients and is well regarded for his succinct and accurate accounting skills. Anthony is also a self-managed superannuation fund (SMSF) specialist with Australia’s leading SMSF body, The SMSF Association.