Christmas is slowly creeping up on us and most of the annual party preparations are underway. Not only will business owners be preparing Christmas Parties, they will be considering what gifts, if any, they will provide to clients and employees. However, an important issue to consider is the possible Fringe Benefits and income taxes that may be applicable when providing ‘entertainment’ to staff and clients.
Christmas parties fall into the category of “entertainment benefits” and as such will incur FBT unless specifically exempt or they fall under the “minor benefits” exemption. A minor benefit is one that is provided to an employee/client on an infrequent or irregular basis and the cost is less than $300 inclusive of GST per employee/client.
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. 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 employee and any associates who also attend the function. Therefore, if the combined cost for employees/associates is $300 or more, GST inclusive, there is FBT on the combined cost — but 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.
Non-entertainment gifts provided to employees “separately” from the Christmas party, however, are exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include flowers, wine, perfumes, gift vouchers and hampers. The ATO has indicated that if the these type of gifts are given to employees two weeks before the actual Christmas party, then the gift and the Christmas function will be treated as separate benefits. This means that the $300 FBT exemption limit can be claimed twice.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT regime, 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 (examples include theatre tickets, passes to attend a musical, live play, movie, tickets to a sporting event or providing a holiday) have different tax implications. If they are given as gifts to employees and family members and are over the value of $300 FBT is payable and a tax deduction is allowed. Where the combined cost for employees/associates is less than $300 GST inclusive, there is no FBT, no tax deduction is allowed and no GST credit can be claimed. The cost of any entertainment gifts provided to clients is not subject to FBT and no tax deduction, or GST credit can be claimed.
Of course this all sounds quite complex, however the team of accountants at The Quinn Group can ensure that the taxman is kept as far away as possible from your Christmas party and provide you with the best tax outcome. For individually tailored information and advice for your tax situation contact us on 1300 QUINNS or click here to submit an online enquiry.