With Christmas just around the corner, many business owners are busy planning gifts and functions as a way to thank employees for their hard work during the year.  We are often asked how Fringe Benefits Tax (FBT) and Income Tax deductions apply to benefits such as Christmas Parties, gifts and bonuses.

Unfortunately, the ATO is not particularly generous when it comes to spreading Christmas cheer and many employers belatedly find out that the cost of their celebrations has doubled due to an FBT liability.

When budgeting for the festive season there are three key matters you need to consider:

  1. Are the expenses tax deductible?
  2. Is the benefit going to create an FBT liability?
  3. Can you claim the GST credits on the expense?

 

FBT and the provision of ‘entertainment’

FBT applies when an employer provides employees (or their associates) with non-cash benefits, that is, benefits other than wages.  One such example is ‘entertainment’ benefits.

‘Entertainment’, which includes entertainment by way of food, drink & recreation, is subject to FBT unless an exemption applies, such as either the ‘exempt property benefit’ or an ‘exempt minor benefit’.

Some of the more common examples of providing entertainment are:

  • Staff Christmas parties.
  • Other Staff social functions and team bonding events.
  • Tickets to sporting events, the theatre, live entertainment and sightseeing tours.
  • Accommodation and travel in connection with entertaining employees.
  • Recreation activities such as gym memberships and golf days.

 
Determining whether an exemption applies is central to working out whether or not the GST credit or an income tax deduction can be claimed on the cost.

 

Exempt property benefits

A property fringe benefit arises where an employer provides an employee with free or discounted property. An exemption from FBT is available where the benefit is provided to and consumed by a current employee on a working day and on the business premises of the employer.

Therefore, if your Christmas Party is held at your business premises on a working day and attended only by current employees, then the cost of the entertainment provided is not subject to FBT.  However, the cost of the entertainment is not deductible for tax purposes and the GST credit is unable to be claimed.

 

Exempt minor benefits

A benefit is considered a minor benefit and therefore exempt from FBT if:

  • The cost of the benefit is less than $300 in value (including GST) per head,
  • The benefit is provided on an infrequent or irregular basis, and
  • The benefit is not a reward for services.

 

When benefits are also provided to associates of the employee (such as children or partners), the minor benefit exemption will also extend to the associate where the cost per person is less than $300.

Again, while the expense is exempt from FBT, neither a tax deduction nor GST credit can be claimed.

 

Gifts to employees, customers, suppliers, or contractors

Employee gifts
 
Christmas gifts to employees are subject to FBT unless the minor benefits exemption applies (i.e. <$300 /person).

Whether or not the GST is claimable, plus eligibility for an income tax deduction, will depend on if the expense is an entertainment gift or a non-entertainment gift.

Entertainment gifts

Gifts such as theatre or sporting event tickets and holidays are classed as providing entertainment.  While applying an exemption means that no FBT is payable, you are not able to claim an income tax deduction or GST credits on the cost.

Non-entertainment gifts

Gifts such as hampers, wine, vouchers, pen sets, flowers etc are not considered to be entertainment.

FBT will only be payable on these gifts if the cost is $300 or more per person. Regardless of the FBT obligation, you can still claim an income tax deduction as well as the GST credit on these type of Gifts.

Gifts to customers, suppliers or contractors

There are no FBT implications on  gifts provided to customers, suppliers or contractors.  This is regardless of whether the cost per head is over or under $300.  If the gift is an ‘Entertainment’ gift, you are not able to claim a tax deduction or a GST credit, however, you can claim a tax deduction and GST credit on non-entertainment gifts.

A summary of the FBT and Tax consequences is included below:

 

Gifts to Employees

FBT Payable

Tax Deduction Available

GST Credit allowed

Non-Entertainment Gifts such as Bottle of Wine, Christmas Hamper, Flowers, pen etc (< $300)

No

Yes

Yes

Non-Entertainment Gifts > $300

Yes

Yes

Yes

Entertainment  Gift such as tickets to Theatre, movie, sporting Event, holiday etc (<$300)

No

No

No

Entertainment Gifts > $300

Yes

Yes

Yes

Gifts to Clients, Contractors, Suppliers

FBT Payable

Tax Deduction Available

GST Credit allowed

Non-Entertainment Gifts such as Bottle of Wine, Christmas Hamper, Flowers, pen etc (< $300)

No

Yes

Yes

Non-Entertainment Gifts > $300

No

Yes

Yes

Entertainment  Gift such as tickets to Theatre, movie, sporting Event, holiday etc (<$300)

No

No

No

Entertainment Gifts > $300

No

No

No

 

Christmas bonuses

If you’d prefer to give out cash bonuses as a way to thank your employees for their hard work, these payments are treated in the same way as salary and wages.  The ATO will treat this bonus as ordinary time earnings and the employee will be taxed on it at their marginal rate. As a result, the employer should take into consideration  PAYG withholding, super guarantee and payroll tax obligations.

 

Further help

If you would like advice regarding your FBT obligations, or need assistance with setting up a system and processes for FBT record-keeping, please contact a member of our team on 07 3831 1055 or mail@hallbrowns.com.

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DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from Hall Browns Accountants. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.

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