The Christmas party season is upon us and as we race quickly towards the holiday break lots of Australian businesses will pay for their staff to let their hair down at the annual end of year celebration.
According to the Tax Office and SmartCompany’s article the top ten tips for avoiding an unwelcome festive season tax bill are as follows:
- If you throw a Christmas function for your staff off-site, for example at a hotel, restaurant or function centre, the cost of providing the party would normally be treated as a fringe benefit, with fringe benefits tax (FBT) payable by the employer.
- However, if the cost per employee is less than $300, no FBT will be due. This is because of the so-called minor benefits exemption. This exemption also applies if spouses or partners come along to the party.
- The minor benefits exemption applies to each benefit provided. What this means in practice is that if you’re feeling generous and spend $290 per head on the party and then give a gift to each employee valued at a further $290, then both expenses are free of FBT.
- If you spend more than $300 on the function, the whole lot will be subject to FBT, not just the excess.
- The costs (such as food and drink) of a Christmas party are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. If spouses or other guests of employees are entitled to attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption (see above).
- If your business also covers the cost of taxi fares to and from the festivities, these costs will count as part of the $300 per head limit if the function is off-site but will be exempt from FBT if the party is at your premises.
- The bad news is that if the cost of your Christmas party is exempt from FBT, it isn’t tax deductible for income tax purposes. Nor can the business claim goods and services tax credits for the costs incurred.
- Confusingly, even though gifts are also covered by the FBT exemption, they generally ARE tax deductible and a GST credit can be claimed.
- If you hold a bash for clients and contacts, there is no FBT but the costs are not income tax deductible.
- They can eat, drink and be merry knowing that the tax consequences usually fall only on the employer!