With the festive season around the corner, it is the time of the year when employers want to reward their employees’ hard work with Christmas parties and gifts.
Before the celebration starts, employers need to be aware that such employee benefits generally attract Fringe Benefits Tax (“FBT”).
However, there are certain benefits that are exempt from FBT so that employers can still reward their employees without worrying about big tax bills post-Christmas.
Minor Benefits Exemption
If any minor benefit is provided to an employee, then it is exempt if the following conditions are satisfied:
- The taxable value is less than $300 (GST-inclusive);
- The benefits are infrequently provided and/or difficult to record and value.
Property Benefits Exemption
An exempt benefit arises where all property, including food or drink, is provided to, and consumed by, current employees and not associates on working days at the employers’ premises. Therefore, any food or drink provided during workdays will be an exempt benefit if these conditions are satisfied.
It is important to note that the above exemptions are only applicable if you use the actual method of calculating meal and entertainment expenses; it is unavailable to those who use the 50/50 method. In order to use the actual method, it is imperative that you keep records of benefits provided for five years after they are prepared, obtained or the transactions completed.
Christmas parties constitute ‘entertainment benefits’ and require a two-factor determination - the location of the party as well as the specific circumstances of the event.
Therefore, for employers to avoid the FBT trap, they should consider the following before planning any events:
Party on business premises
What is an associate? Under the FBT Assessment Act, an associate includes relatives, partners, trustees and beneficiaries.
Party off business premises
The golden rule for the tax deductibility of entertainment is when employers have paid FBT, it is tax deductible!
A lot of employers tend to be more generous in appreciating employees during this season by giving gifts. However, it is very important to consider various implications when choosing gifts. If the gifts are non-entertainment in nature, employers are entitled to claim the gifts as tax deductions and any GST credits, no matter the costs.
Tips to consider when choosing gifts
- When giving gifts, be aware that the minor, infrequent and irregular exemption is capped at $300;
- Gift hampers included in the Christmas parties are treated separately when considering the $300 minor benefits exemptions. Although the total cost per head is more than $300, each benefit should be considered separately when applying the minor benefit exemptions;
- While giving gifts is quite exciting during the holiday season, it is best to limit them to gifts that are not related to recreation or entertainment.
Cancellation of Events due to COVID Lockdown
With the uncertainty of COVID-19, various unexpected lockdowns, and different measures that each state government has been implementing, Christmas parties will be different compared to prior years.
A lot of employers may have already paid for a deposit to secure a venue for the Christmas party and wondered how this would impact the FBT and income tax implications. The ATO has COVID exemption in place to ensure employers have peace of mind when booking venues.
No FBT is payable for the employers on the non-refundable deposit paid for Christmas parties. The ATO explains that the arrangement itself is between the employers and the event organisers, not with their employees.
This indicates that employers have not provided any fringe benefits to their employees as the event has not occurred.
Nonetheless, the employers need to be aware that FBT would apply if they are reimbursing employees for cancelled events which the employees paid for personally. This will be treated as an expense payment fringe benefit and subject to FBT, unless the otherwise deductible rule applies.
For more information
If you require further information on Fringe Benefits Tax, please contact your local RSM adviser.