Throwing a work Christmas party this year? Giving out some gifts? There’s a tax for that - Fringe Benefits Tax, and if you aren’t careful you could get a surprise call from the Australian Tax Office.
Fringe Benefits Tax (FBT) is the tax employers pay on benefits they provide to employees, their family or other associates in addition to, or as part of, their salary or wages.
Work cars for employees’ private purposes, or paying for an employee’s private health insurance come under the FBT regime, and so do Christmas parties.
Here’s the good news: there are exemptions under FBT that could save your business some money.
The catch: it’s not exactly simple to determine what’s FBT-exempt and what’s not. The Tax Office recently released a six-page document to help clear the air.
Here are a few tips and tricks to successfully navigate FBT reporting.
1. Venue matters
Whether your Christmas party is considered ‘entertainment’ or ‘non-entertainment’ is just as important from the ATO’s perspective as it is for your employees.
From the Tax Office’s perspective, you’ll be more likely to be FBT-exempt if the location where your party is held is classified as ‘non-entertainment’.
If the Christmas party is at your office it’s more likely to be classified as ‘non-entertainment’, but FBT is complex, so that’s only general advice and open to interpretation.
The ATO defines ‘entertainment’ with a few dot points on its website:
- Providing entertainment by way of food, drink or recreation;
- Providing accommodation or travel in connection with such entertainment; and
- Paying or reimbursing expenses incurred in obtaining something covered by either of the above.
2. $300 IS A magic number
When it comes to FBT, $300 is an important number to remember.
It’s basically the threshold for what classifies as a ‘minor benefit’ and what doesn’t.
That’s important because minor benefits are often exempt from FBT, but there are some conditions.
A minor benefit has to be infrequent and irregular, meaning you can’t throw a Christmas party-scale event every other week and still say its infrequent.
A business that holds an end-of-financial-year party and a Christmas party should be okay on this front.
The total amount spent per head also has to be $300 or less, and this is for all similar expenses you’re claiming throughout the FBT reporting year for that employee.
3. ‘non-entertainment’ gifts MAKE for the best tax outcomes
He knows when you’re sleeping, he knows when you’re awake, he knows when you’ve been bad or good, he knows the FBT classification of your workplace Christmas gift ('he' being the tax office, that is).
Tickets to concerts, movie passes and holidays are classified as entertainment gifts by the ATO and are usually subject to FBT.
However, hampers, vouchers, bottles of wine and other similar gifts are classified as ‘non-entertainment’ and are generally exempt from FBT.
In general, gifts that are considered ‘things’ are less likely to be considered ‘entertainment’.
There are also different rules depending on whether gifts are for employees, clients or suppliers.
For instance, employees carry an FBT obligation whereas clients and suppliers don’t.
To summarise, there are a few important questions to ask yourself before you throw your Christmas party.
- How much will it cost? Remember $300 is the magic number.
- Where is it, and when will it be held? At the office or outside of work?
- Who’s invited? Is it employees only? Are partners, clients and suppliers also invited?
- Giving gifts? How much are they worth, what type are they and who is receiving?
If this all seems a bit onerous, don’t worry - you aren’t alone. The Board of Taxation was asked to review FBT compliance costs by the government in February and is due to provide some advice early next year.
Unfortunately, that’s not in time for Christmas 2018.
If your concerned about FTB issues around your business' Christmas activities, get in contact with your adviser at The Peak Partnership. It's better to be safe than sorry this silly season.