The festive season is fast approaching and with it comes the temptation to eat, drink, and make merry, hopefully on the company’s dime.
After all, you’ve worked hard and put in long hours to achieve your goals. It’s only right that you get to reward your clients as well as
your staff and their families, maybe even yourself. Before you go all out, though, be aware that the Commissioner of Taxation will be going
through all expenses relating to your gifts and gatherings with a fine-toothed comb. But worry not, you can still have your Christmas cake
and eat it – and avoid the associated FBT (Fringe Benefits Tax), Income tax, and GST hangover – by adhering to the following guidelines.
Know your limits
It seems only natural that your staff Christmas party should be automatically deductible as a benefit. However, one reason your staff Christmas party may be considered not exempt from FBT would be if the spend per employee is greater than $300. The Commissioner of Taxation has determined that $300 is the maximum amount you can spend per employee per occasion if you wish festive season related gifts and gatherings to remain tax-free. In other words, the $300 threshold does not apply to the accrued value of associated benefits but rather to each benefit provided. So, if in addition to the Christmas party you were to be generous and throw in a gift for each employee, the party and gift would be considered individually for FBT. And if the benefits fall below the $300 threshold, they will qualify for an exemption.
Location counts
One of the simplest ways to satisfy the minimum benefit conditions is to host your staff Christmas party at your workplace during regular working hours and to limit attendance to employees only. Should you decide to allow employees’ families to attend, it is essential that your total spend per employee-family group remain below the $300 threshold to qualify for FBT exemption. And if you prefer to go the extra mile and host your office Christmas party at a function venue instead, bear in mind that your total spend per employee or employee-family group includes any meals, drinks, entertainment, and associated benefits. Also note that this total is still subject to the previously stated $300 threshold, among other conditions, to retain minimum benefit status.
When is a gift not a gift?
If an employee Christmas gift or associated benefit qualifies as a minor benefit or exempt from FBT, you usually won’t be able to claim any GST credits from the purchase, nor will you be able to claim it as an income tax deduction. However, whether the gift is classified as “non-entertainment” or “entertainment” also determines if a gift is income tax deductible or if GST credits can be claimed.
And what about the taximan?
Again, exemption from FBT all depends on the applicable conditions; in this case, the route the taxi is travelling and its given destination. If the taxi is ferrying employees from the workplace to the venue where your Christmas function is being hosted, and then back to the workplace afterward, the fare may qualify as exempt from FBT. If an employee overindulges, however, and consequently needs to be taxied from the function directly home, the fare will most likely be subject to FBT.
Is a Christmas bonus considered exempt?
Should you choose to forego the festivities and instead reward your staff with cash bonuses, be aware that it will be treated as a regular wage or salary payment. In other words, PAYG withholding, the Commissioner of Taxation will consider a Christmas bonus as ordinary time earnings and super guarantee and payroll tax obligations will be triggered. Record it all, big or small We strongly recommend you classify your expenditure on gifts and gatherings into one of the following categories:
Make sure to add some explanatory comments in your accounting software, so we know to what the expenditure relates. Keeping a clear and consistent record of all spend relating to entertainment and gifts for your clients as well as your staff and their families can ensure you pay the minimum amount of FBT, income tax, and GST.
What now?
Do you need expert assistance navigating the complex web of FBT, income tax, and GST provisions? SMART Business Solutions is here to help you identify which of the rules applies to your business’s circumstances, so you can enjoy a worry-free festive season and begin the new year on a good note
Want to grow your business & improve cash flow? You need SMART solutions for YOUR business,
not just annual tax compliance! Get the SMART team working with you. Call SMART Business Solutions today on 03 5911 7000 or
reception@smartbusinesssolutions.com.au.
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