Without trying to sound too much like, well, accountants, it might be important to watch the budget this festive season - if you don’t want to be subject to Fringe Benefits Tax (FBT)!
In previous years, the pandemic has successfully torpedoed all prospects of a Christmas party, forcing them to exist online. So, it’s understandable that having now defeated the dreaded Covid-19, businesses want to make up for a few lost Silly Seasons. However, if you don’t spend wisely, you may fall foul of FBT.
To ensure you don’t encounter any unanticipated taxes this festive season, we have gifted you with a brief FBT guide. Read on to unwrap it.
What is FBT?
Fringe Benefits Tax (FBT) is paid by employers on certain benefits provided to their employees, such as Christmas parties, cars, or gifts. FBT is separate from income tax and is based on the taxable value of the various fringe benefits you provide. Importantly, while some benefits may be provided in monetary form, they may still fall under the “fringe benefit” category and are therefore taxed as a fringe benefits tax, as opposed to income tax. The FBT year runs from April 1st to March 31st, and FBT liability is self-assessed by employers.
Fringe Benefits Tax Implications
FBT on Christmas Parties
Before planning a Christmas party, there are two considerations that we suggest making:
1. Who will be attending?
FBT regulations differ depending on whether you are entertaining clients or employees. As such, client expenditure related to food and drinks is not subject to FBT, nor is it income tax deductible.
However, to additionally ensure that costs pertaining to food and drinks consumed by employees are FBT-exempt, you must spend less than $300 per employee. There is also no tax deduction or GST input credit claimable for these expenses.
2. Will the event take place in your office or on-site?
Should you choose an on-site location for your Christmas party, you won’t be affected by FBT, regardless of whether you are entertaining clients or employees, or whether the costs associated with your Christmas party exceed $300 per person.
If your Christmas party happens off-site you will be subject to FBT payable only if the cost surpasses $300 apiece. However, keep in mind that this will only apply to employees and family members, as clients are exempt from FBT.
Please note that different regulations do, however, apply to businesses that use the 50/50 split method.
FBT on Christmas Gifts
The Australian Tax Office (ATO) FBT regulations dictate that non-entertainment gifts provided to employees are exempt from FBT if the total costs are less than $300 per employee (inclusive of GST). For non-entertainment gifts such as hampers or flowers, a tax deduction can be claimed.
However, gifts that are entertainment related (such as a restaurant voucher or holiday) are FBT payable if they exceed the $300 (including GST) threshold. Unlike a non-entertainment gift, you would not be able to claim a tax deduction or GST credit for entertainment gifts.
Azure Group's FBT-friendly Tips
Tip #1 Understand which exemptions apply to you
Often businesses overlook FBT exemptions, which can easily be avoided. Minor and infrequent benefits are the most common exemptions associated with Christmas parties to be mindful of!
Tip #2 If no exemptions apply to you, consider how you can reduce FBT payable
Consider consuming food and drinks on-premises to avoid FBT obligations. Alternatively (as you may be sick of staring at your office space by December), you could provide a cash bonus to employees to spend, as cash does not constitute a Fringe Benefit, and therefore employers will not be required to pay FBT on this bonus, rather an employee will pay tax on the bonus at their marginal rate through their PAYG Withholding system.
Tip #3 Understand the tax implications of Fringe Benefit Expenses
Generally speaking, if the FBT is payable on the benefits provided for the expense it will be tax deductible and the GST credits are claimable.
Applying the 50/50 method to value your entertainment benefits only 50% of the expenses will be tax deductible and only 50% of the GST credit will be able to be claimed.
If no FBT applies to Christmas party expenses due to one of the above exemptions being applied the expense will not be tax deductible and no GST credits will be allowed to be claimed.
Tip #4 Stay up to date with record-keeping requirements
To calculate FBT on the entertainment provided to employees correctly, the employer is required to maintain accurate records and ensure these expenses are appropriately categorised when processing the financial accounts.
Tip #5 Understand what is and isn't tax deductible!
Please note that you cannot claim input tax deductions on minor exempt benefits (or otherwise, benefits that are less than the $300 threshold), and whilst exempt from FBT, the cost of these benefits still cannot be claimed as a tax deduction.
Get in touch
The world of Fringe Benefits Tax (FBT) can be complex. Our taxation specialists are well-versed in the myriad of ways that you can avoid being subject to FBT obligations. Get in touch today for more information, or for your tax accounting needs!
Have you noticed our #FridayExpertTips... here's one that relates to Fringe Benefits Tax
"If the proposed legislation to make electric and plug-in hybrid cars exempt from Fringe Benefits Tax (FBT) is passed, all employers should consider offering their staff the ability to salary sacrifice a car to reduce employees' tax. Get in touch to learn more."
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