As the festive season fast approaches, it’s time to start thinking about and planning for the break.
Christmas parties, client gifts, office closure dates – the list goes on.
For most business owners, it also means it’s time to start thinking about saying thanks to your employees for another year of hard work.
But it’s important to be aware of the tax implications of any gifts and celebrations you provide, as the rules can be complex. This article is a bit long, but may be invaluable!
If possible, we want to avoid paying more tax in the form of FBT this Christmas time. Because really, who wants to pay an additional tax? (not us!) We’ll show you how:
Firstly, what is FBT?
Fringe benefits tax is an additional tax that is imposed for giving staff a benefit aside from their salary/wage. This includes things like paying for a company car that is also available for personal use, providing a gym membership – and Christmas parties.
Please be aware that costs exempt from FBT generally cannot be claimed as tax deductions.
How can I avoid paying FBT for my Christmas party?
If you hold your Christmas party at your business premises on a work day, with current staff only – your Christmas party will be FBT free. In this scenario, there is not a limit of what you can spend per person. However, if family members of staff attend the function, the $300 limit per person applies for the non-staff attendees – otherwise an FBT liability may arise.
If you’re looking at celebrating out of the office be sure to stick to under $300 per person.
What is the $300 rule?
Spending under $300, infrequently, is classed as a ‘minor benefit’ and doesn’t attract FBT. Therefore, providing a meal and drinks under $300 per head at a restaurant will be considered a minor benefit, and will not attract FBT.
How about taxis/ubers?
- From work to location is FBT free.
- From home to location and back may attract FBT – so if you can, arrange for everyone to leave from and be delivered back to your work premises.
- Business Christmas parties are classed as an extension of the work place – you are responsible for your employee’s safety, so it’s a good idea to cover these costs.
What about gifts?
Gifts to employees
Less than $300 is the threshold. Keep the value below $300 ($299.99) and you will not incur an FBT liability. Things like hampers, wine, flowers or vouchers will not attract FBT when under $300 – so these are good choices. The added bonus here is you can claim a tax deduction and GST credits for these items.
Entertainment gifts – things like tickets to sporting matches, theatre tickets or meals at a restaurant given as a Xmas gift will again be FBT exempt if under $300. However, you will not be able to claim a tax deduction or GST credits for these entertainment items.
The most tax effective gifts to give staff are those non-entertainment items listed above, that are valued at under $300.
Gifts to clients/suppliers
Rules for clients and suppliers are different to those involving staff.
Entertainment gifts – per above are things like sporting events, movie tickets and holidays. These will not attract an FBT liability regardless of value when purchased for clients or suppliers. However, you will not be able to claim a tax deduction or any GST credits for entertainment gifts.
Non-entertainment gifts – like the bottle of wine or hamper mentioned above – these are not subject to FBT regardless of value – however for these types of gifts you can claim a tax deduction and claim any applicable GST credits.
Therefore, these non-entertainment gifts are the most tax effective way of giving back to your clients this Christmas.
What is classed as entertainment?
Entertainment can be things such as tickets to sporting events, theatre tickets, movie tickets, sightseeing tours and holidays.
It could also be a meal or drinks that you have enjoyed together.
Non-entertainment can be items such as bottle of wine, carton of beer, food hamper or grazing box, flowers, or even a box of chocolates.
Where to from here?
Generally when preparing your BAS we ensure the GST treatment on entertainment is correct, however we rely upon you providing details about your Christmas party to us at FBT time.
FBT returns are due in March, so any FBT you need to pay for Christmas related expenses won’t need to be calculated until then. We will send you an FBT questionnaire closer to this time.
For now, it’s a good idea to keep the $300 limit per person in mind when organising your Christmas parties and gifts for your staff – and one that can potentially save you a lot of money.
FBT is confusing at the best of times, and we are here to help if you have any questions. If you’d like a one-on-one discussion about your business, fill in your details here and we’ll organise a discovery meeting.
Not quite ready for a meeting?
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