It’s that time of the year!
Christmas parties are a time for celebration, fun, and camaraderie, but they can also be a source of fringe benefits tax (FBT) headaches for employers. These headaches typically aren’t front of mind at Christmas time, but if you use a few simple steps, you’ll be able to avoid some tax pain in the New Year.
But how will I know I’ve provided a fringe benefit?
If you have provided benefits to your employees by way of food and drinks, recreation and/or gifts, the costs of these may be subject to ‘FBT’.
The good news is that there is an exemption to the FBT that may be applicable to the costs involved in throwing a Christmas party. If you keep the cost of the party below the threshold, you won’t have to worry about any FBT liability, so you can enjoy a holiday season, free of FBT-related stress.
How can I be exempted from FBT for the Christmas party?
The most important exemption to FBT you should be aware of is that of the ‘minor & infrequent’ exemption, or “M&I”. This exemption in short provides an exemption from FBT where the amount of meal entertainment provided is less than $300 per person and it is provided in a sufficiently infrequent nature that it would be “unreasonable to treat it as being subject to FBT”. M&I also extends to allow an exemption on property fringe benefit, where the employer has provided benefits of any company paid-for gifts of less than $300 in value per person.
When looking at this practically, if you’re hosting a party for ten employees for example, the total cost of the meal entertainment provided would need to be less than $3,000 for the FBT exemption to apply.
There are a few other rules to keep in mind when it comes to the FBT exemption for Christmas parties:
- Ensure you keep proper records of the attendees of all entertainment expenses, including cost per head, number of staff/associates/clients in attendance, on-site or off-site, and whether it is during business hours.
- Ensure you elect to treat meal entertainment expenses using the actual method instead of 50:50 split method, and keep the appropriate records of the attendance as noted above.
- Ensure you keep the total per-head cost of the event to less than $300 per person. You may consider providing gifts and awards at a separate event, or instead consider providing bonuses via salary payments instead of an expensive gift.
Overall, the FBT exemption for Christmas parties can be a great way for employers to save money, without sacrificing the fun of the festive season. Just make sure you plan carefully, maintain good records, and keep your costs within the $300 threshold.
It’s important to remember that the $300 threshold applies to the total food and drink cost of the party. So, if you’re planning a lavish feast, you may need to scale back your plans if you want to stay within the FBT exemption. You may consider providing gifts and awards at a separate event, or instead consider providing bonuses via salary payments instead of an expensive gift!
Unsure where to start? Let Prosperity Advisers help you sort it out instead!
Don’t wait until your FBT returns are due. Make it your New Year’s Resolution to come and talk to the Prosperity team so we can review your FBT reporting obligations and advise you on how to better manage your FBT record keeping methods and to maximise tax efficiency in your business!
To discuss any taxation concerns you have regarding FBT please contact Manager of Taxation, Charles Yuan at cyuan@prosperity.com.au.
