Christmas is slowly creeping up on us and most of the annual party preparations are underway. As business owners start making decisions about events for clients and employees, an important issue to consider is the possible fringe benefits tax that may be applicable when providing ‘entertainment’ to staff.
Christmas parties fall into the category of “entertainment benefits” and as such will incur FBT unless specifically exempt or determined to be a “minor benefit”. A minor benefit is one that is provided to an employee on an infrequent or irregular basis and the cost is less than $300 inclusive of GST per employee.
Holding the Christmas party on the business premises on a working day is usually the most tax effective. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. However, where employees’ families (i.e. associates) also attend and the combined cost for the employees and associates is $300 or more inclusive of GST, there is FBT only on the associates’ portion of food and drink, and a tax deduction and GST credit can be claimed on that portion. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost. If only employees and clients attend — with only finger food or a light meal and no alcohol — then the entire cost is tax deductible. There is no FBT and a GST credit can be claimed.
Should you be holding your Christmas party off the business premises, these would only be exempt from FBT if the cost per head for employees/associates is less than $300 inclusive of GST (i.e. considered a minor benefit). If this is the case no tax deduction or GST credit can be claimed. Please note that associates are not counted in the “per head” calculation, meaning that the $300 FBT minor benefits exemption applies to the combined cost of the employees and any associates who also attend the function. The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.
Although this sounds quite complex, the team of accountants at The Quinn Group can help you ensure you legally minimise your tax liability this Christmas. For individually tailored information and advice for your tax situation contact us on 1300 QUINNS (784 667) or submit an enquiry online.