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End of Year Fringe Benefits and Christmas parties by lindash

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End of Year Fringe Benefits and Christmas parties

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									        End of Year Fringe Benefits and Christmas parties
At Christmas time, it is common for businesses to provide fringe benefits to employees, their
associates, and clients. These might include an end of year party, as well as food and drinks,
entertainment, gifts, and other concessions.

These benefits are subject to complex tax laws. This article gives an outline of the various income tax,
GST, and fringe benefits tax (“FBT”) laws and how they might apply to your end of year business
celebrations.

          A note on fringe benefits tax (“FBT”)

          FBT is a tax paid on certain benefits employers provide to their employees or their employees’
          associates. FBT is separate from income tax and is based on the taxable value of the various fringe
          benefits provided. The FBT year runs from 1 April to 31 March.

          As an employer, you have to pay FBT, even if the benefit is provided by an associate or by a third
          party, such as a supplier, under an arrangement with you. It makes no difference whether you are sole
          trader, partnership, trustee, corporation, unincorporated associations or government body or whether
          you have to pay other taxes such as income tax. Specific rules apply to tax-exempt bodies.



If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment,
the following guidelines should apply.

Christmas parties, food and drink
Most business Christmas parties are considered “entertainment” benefits and are subject to FBT,
unless they fall under the minor benefits exemption, or are specifically exempt.

Minor benefits
The ATO recently changed its view regarding the application of the minor benefits exemption to
Christmas parties and gifts. The minor benefits threshold applies to benefits that are provided on an
infrequent or irregular basis and not as a reward for services, and has been increased from $100 to
$300. Each amount is to be considered separately. The threshold applies to employees and also
associates of employees. Therefore, where employees attend a Christmas party for $190 per person
and their spouses also attend, the costs are considered separately, and the minor benefit exemption
applies with the result that no FBT is applied.


“It can be tax effective to keep the per-person cost of your Christmas party under $300
   and individual gifts under $300 to best utilise the “minor benefit” FBT exemption.”

Exemptions

The costs (such as food and drink) associated with Christmas parties are generally exempt from FBT
if they are provided on a working day on your business premises and current employees attend (an
exempt property benefit). If associates of employees attend, the party will be taxed under FBT, unless
exempt under the minor benefits threshold.

The costs of Christmas parties which are held off business premises (perhaps in a restaurant) will be
taxed as fringe benefits for employees and their associates unless the benefits are exempt minor
benefits.
Tax deductibility

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to
FBT. Therefore, any costs that are exempt from FBT cannot be claimed as an income tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.



        Holding your Christmas party on the
     business premises can be very tax effective.



Gifts

‘Non-entertainment’ gifts

Non-entertainment gifts provided to employees (such as flowers, wine, and gift vouchers) are usually
exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST
credit can also be claimed.

Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the
employer, the benefits are associated benefits, but each benefit should be calculated separately to
determine if they are less than $300 in value. If the Christmas party and the gift are each less than
$300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not
provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts,
provided they are not excessive or overly valuable.

‘Entertainment’ gifts

The provision of entertainment gifts (such as theatre tickets, tickets to a sporting event or providing a
holiday) has different tax implications. Where the cost for the employee and their associate is less
than $300 each GST inclusive, there is no FBT, no tax deduction is allowed and no GST credit can be
claimed. However, if the cost for the employee and their associate is each $300 or more GST
inclusive, a tax deduction and GST credit can be claimed, but FBT is payable.

The cost of any entertainment gifts provided to clients is not subject to FBT and no tax deduction, or
GST credit can be claimed.

How to lodge and pay your FBT
FBT is self calculated. You need to keep a necessary record of benefits given to employees, and
register for payment of FBT if appropriate. If you are paying FBT, you need to lodge an FBT return.


Please do not hesitate to contact us at Butlers for more information on how plan your
                  Christmas celebrations in a tax effective manner


       Have a Merry Christmas, and best wishes for the New Year

								
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