With the Christmas silly season fast approaching most employers will be planning an end-of-year function to celebrate the end of another calendar year. The hangover from celebrations may come back to haunt you if sufficient thought isn’t given to the potential fringe benefits tax consequences. We have given a broad outline of any potential FBT implications for you to consider.
Fringe Benefits Tax (FBT) is levied on employers when benefits are provided to an employee or their associate (e.g. family members or partner). Food, drink, entertainment and gifts provided to employees or their associates may be taxable.
Expenses that are subject to FBT are deductible for income tax purposes by the employer, and conversely any expenses that are exempt for FBT are not deductible. It should also be noted that the costs associated with entertaining clients are not subject to FBT in any circumstances, however they are also not deductible.
Minor Benefit Exemption
The most common way to minimise potential FBT implications at Christmas time is via the ‘Minor & Infrequent’ exemption. If your meal & entertainment costs are kept below $300 (GST inclusive) per head then the exemption will apply, provided such parties aren’t a common occurrence.
It is worth noting that the $300 per head includes all employees, associates & clients in attendance, so if you have 20 people (regardless of how many attendees are employees, clients or associates) you effectively have up to $6,000 (incl. GST) to qualify for the exemption.
We know that keeping the extravagance to a minimum isn’t always easy. So if you intend to exceed the $300 exemption there will likely be FBT implications. A Subway platter and a carton of beer should keep the masses happy for 10 minutes or so, and keep the budget under $100 in total.
Christmas party at work premises
A Christmas party held at the employer’s business premises on a working day where food and drink, including alcohol, is provided is usually FBT-exempt, which is no different to the occasional Friday drinks at work).
These benefits are only exempt to the extent that they are provided to employees and to the extent that the minor benefit exemption does not apply.
Christmas Functions held off-site
The costs associated with Christmas parties held off-premises (such as food, drink and transport to a restaurant) will give rise to FBT unless the minor benefit applies. FBT will not apply to the extent that the benefit is provided to any client.
Taxi costs and other Transport
Taxi (or limousine) travel provided to an employee will generally attract FBT unless the travel is for a trip which either starts or ends at the employee’s place of work.