As the festive season is fast approaching and employers are likely starting to plan their staff Christmas parties, we thought a reminder of the associated tax implications would be handy. Whilst it is important to celebrate the holidays and reward your staff, it pays to be aware of the various rules around income tax, GST and fringe benefits tax (FBT).
First, let us look at the factors:
What was the cost and how frequently do you provide benefits?
Who is the recipient of the benefit?
Does the benefit constitute entertainment?
1. Cost and Frequency
Minor and infrequent benefits are exempt from FBT. If the cost is less than $300 per person (not per employee), FBT would not apply. Frequency is not defined and is subject to your personal circumstances. Our general rule of thumb is twice a year; the Christmas party or end of financial year or meeting a specific sales target should qualify for FBT exemption. Remember though, the benefit must meet both tests. i.e. be infrequent and less than $300.
2. Benefit Recipient
The rules are different for employees (including their family) versus clients/suppliers/contractors. Why? FBT is only applicable to employees.
3. Entertainment versus Non-Entertainment
The following is considered to be entertainment:
Holidays or accommodation
Tickets to movies, theatre, sporting events, amusement parks
The following is considered to be non-entertainment:
Plainly speaking, entertainment is not tax deductible whereas non-entertainment is tax deductible.
This flowchart provides a good summary for employees and their family
If the benefit is provided to a client/supplier/contractor, the outcome is as per above but only using the results for <$300 as this cost limit is only relevant to employees.
How do I get the best tax outcome?
1. Limit the cost of the restaurant meal to under $300 per head as this will avoid FBT, note though that this is not tax deductible.
2. Provide a gift (less than $300) that constitutes ‘non-entertainment’ i.e. a bottle of whiskey/wine or a gift voucher for Myer or similar.
What if I gave a Christmas bonus instead?
If you prefer to give a cash bonus rather than a gift voucher, the payment is treated as ordinary income and would attract superannuation and require tax to be withheld.
If in doubt, simply contact your tax adviser at Pass & Associates!