Christmas planning and festivities are well and truly upon us. In this article, we explore how to reward your staff and show some festive cheer, and hopefully not be the Christmas Grinch whilst managing your FBT liability.
What is FBT? Fringe Benefits Tax (FBT) is a tax levied on businesses for certain non-salary benefits provided to their staff. A fringe benefit is a ‘payment’ to an employee but in a different form than salary or wages. It applies to perks beyond regular salary payments, like company cars, entertainment, or even holiday gifts.
Below we share our top four scenarios to consider when managing your FBT liability in relation to Christmas parties and gifts.
1. Onsite Christmas Parties
Everyone enjoys something to eat and generally a drink at a Christmas party. If a Christmas party is held at your business premises on a working day, any food or drinks on offer to your team at the party will not be subject to FBT as it is an exempt property benefit. When gifts are received by staff, these may qualify as exempt minor benefits if the value of the gift is less than $300 incl GST for each employee.
The cost of your Christmas party will not be deductible for tax purposes in these circumstances. However, the cost of the gifts provided to your employees may be deductible (if the gift itself doesn’t represent “entertainment”).
2. External Christmas Parties
Offsite Christmas parties may still qualify as an exempt minor benefit if the cost per benefit per employee is less than $300 incl GST.
If you decide to offer gifts, these gifts may separately qualify as an ‘exempt minor benefit’ if the value of the gift itself is less than $300 incl GST.
If your Christmas party represents an exempt minor benefit, the cost of the Christmas party will not be deductible for tax purposes.
3. No FBT Exemption applies
If none of the above exemptions apply, your Christmas party and gifts will be subject to FBT. In this instance, the 50/50 split method can be used and this means the taxable value is 50% of your total meal entertainment expenditure.
The expenses from your Christmas party and gifts that are subject to FBT will be deductible for tax purposes (as you will have already paid FBT).
4. Consider GST implications
Tax Credits for GST paid on expenses can only be claimed on the portion of the expense that is tax deductible.
FBT can be complex as there are many exemptions and calculation methods. The FBT year ends on 31 March 2024. We recommend speaking to your trusted advisor for clarification or further information on how FBT liability could apply to your business this festive season.
By Yvonne Yin, Associate Director at BYRONS.