Everyone loves a great Christmas party. They are a great way to let your employees know that their hard work is well appreciated. However, a little tax planning is necessary to ensure you aren’t copped with a huge FBT (Fringe Benefits Tax) bill at the end of the fun.
Generally, the three primary benefits employers will provide their employees is a Christmas party, gifts, or a cash bonus. Unfortunately, there is no separate FBT category for Christmas benefits meaning that all benefits provided are treated the same as they would be at another time in the year. To help you navigate FBT here are 5 tips for FBT during Christmas time.
What are Minor benefits
A minor benefit may be exempt from FBT if it is provided infrequently or irregularly. They are generally a benefit that has a taxable value less than $300 including GST, is not a reward for services, and satisfies certain relevant conditions. You should talk to your accountant if you are unsure whether a particular employee benefit will count as a minor benefit.
1. Use exempt property benefits
If you hold your Christmas party at your business premises on a working day it may be considered as an exempt property benefit. This will usually make the event FBT-free. Even when food and drinks are provided, it is similar to occasional Friday afternoon drinks at work.
There are some strict rules when using exempt property benefits. The benefit will only be FBT-free if it is provided to a current employee, and is provided to the employee on a working day on the business premises. This means that if you invite employee families the event becomes subject to FBT.
2. What you can do about external Christmas functions
External Christmas events, that is events held at a venue or restaurant, will be subject to FBT. To avoid these events becoming subject to FBT they will need to sit under the minor benefits threshold. However, if you provide the benefit to a client you will not be required to pay FBT tax for their attendance. This is due to FBT only being applied to benefits for staff.
3. Getting to and from a Christmas function
On some occasions an employer may provide transport to or from a Christmas event. This could be provided via taxi, bus, Uber, or other forms of transport. Unless the transport is to and from the employee’s place of work, the travel costs will be subject to FBT. However, there are many cases where FBT may not apply, scenarios include:
If the Christmas event was held at the employee’s place of work and the business pays for a taxi ride home for the employee, FBT will not apply.
In an occasion where the Christmas event is held off premises and the employer pays for travel to and from the event for their employees, however, the return trip is to the employees’ homes, FBT will apply for the second trip, not the first.
If the transport comes under a minor benefit exemption threshold, FBT will not apply.
4. Giving Christmas gifts
If you give gifts to your employees or their families, they may be subject to FBT. An exemption will be made if they are bellow the minor benefits threshold. Gifts to clients are not subject to FBT, however, if they are given for the purpose of producing future assessable income, may be deductible. Talk to your accountant about how FBT should be calculated on your gifts, and about any deductions you may receive on gifts to clients.
5. Giving cash bonuses
Cash bonuses are a business cost, and so, are not subject to FBT. As they are a business cost, they are also deductible under the general deduction provisions. However, while you may not need to worry about FBT there are other taxes that may apply. These include PAYG withholding, superannuation guarantee and other payroll tax issues. If you want to give your employees cash bonuses you should discuss any tax obligations you may have with your accountant.
In order to avoid being charged FBT for your Christmas event you will need to remain under the minor benefits threshold. To deal with any taxation issues or questions that arise around your Christmas events or gifts you should talk to your accountant. A professional accountant will advise you on how you should minimise the amount of FBT you will pay on your Christmas events and gifts. Talk to Link Advisors today about your Christmas events.