With the silly season fast approaching and the annual Christmas party up and coming, we wanted to bring to your attention some of the tax consequences during the festive period.
Along with income tax and GST, there is Fringe Benefits Tax (FBT) to consider and often gets overlooked when providing numerous benefits to employees. FBT is a burden worn by the employer and at 47%, can be an unexpected shock to business owners when reviewing their annual FBT obligations.
Christmas Parties
When throwing a Christmas party, the main considerations (from a tax perspective) are as follows:
- Where will the party be held?
- Who will be in attendance?
- How much will be charged per head?
If you were to host your Christmas party on your business premises, this is generally exempt from FBT. There would be no tax deduction available, and the GST credit cannot be claimed on these expenses. The only other consideration is if an associate of the employee is in attendance, there may be FBT implications should the cost be over $300 per head.
As mentioned above, employee partners (referred to as associates in the FBT world) can also be subject to FBT. Therefore, it is important to note who is in attendance to calculate the “per head” spend and include any plus 1’s.
The minor benefit exemption threshold is $300 (incl. GST) per head, providing meal entertainment benefits are not regularly provided, and is well worth bearing in mind. Should the “per head” amount be under $300 (and similar benefits not regularly provided) then there will be no FBT implications, no tax deduction and GST credit available.
Gifts
When determining the tax implications of employee gifts, there are two types of gifts:
- Non-entertainment gifts: Examples include skincare, beauty products, perfume/after shave, gift vouchers, hampers and alcohol NOT consumed at the workplace
- Entertainment gifts: Examples include tickets to a musical, theatre, play, film, sporting event or providing a holiday.
The importance of the type of gift is critical, as determined in the table below. Again, the $300 magical minor exemption benefit mentioned above, also applies:
Non-entertainment gifts
| FBT | Tax deduction | GST | |
| Under $300 | X | 🗸 | 🗸 |
| Over $300 | 🗸 | 🗸 | 🗸 |
Entertainment gifts
| FBT | Tax deduction | GST | |
| Under $300 | X | X | X |
| Over $300 | 🗸 | 🗸 | 🗸 |
As the above shows, determining the correct gift is crucial and non-entertainment gifts under $300 are far more tax friendly to the employer.
The complexities around Christmas parties and gifts are clear to see and we highly recommend careful consideration of the above.
As always, please get in touch with the Connolly & Associates team should have any queries or concerns on any of the above.
