As the Spring racing carnival is upon us, and with the
December/January break on the way, many employers and businesses
will be planning to reward staff with a celebratory party or
However, an important issue for our clients to consider is the
possible FBT and income tax implications of providing
'entertainment' (including Christmas parties) to staff and
Under the Tax Act, employers must choose how they calculate
their FBT entertainment liability and most use either the actual
method or the 50/50 method.
Under the actual method, entertainment is normally split up
between employees (and their family) and non-employees (e.g.,
Expenditure on employees is liable to FBT and deductible.
Expenditure on non-employees is not liable to FBT, and is not tax
Using the 50/50 method instead?
Rather than apportion entertainment expenditure between staff,
associates and business clients, etc., many employers choose to use
the more simple 50/50 method.
Under this method, (irrespective of where the party is held or
who attends) – 50% of the total expenditure is subject to
FBT and 50% is tax deductible.
However, the following traps must be considered:
even if the function is held on the employer's premises
– food and drink provided to employees is not exempt from
the minor benefit exemption* cannot apply; and
the taxi travel exemption cannot apply.
(*) Minor benefit exemption
The minor benefit exemption provides an exemption from FBT
for benefits of 'less than $300' which are provided
to employees (and their family/associates) and which are infrequent
The Tax Office accepts that different benefits provided at (or
about) the same time are not added together when applying this
Basically, this means that a Christmas party and gift may be
exempt from FBT, even if provided at the same time, as long as the
cost of each benefit is less than $300.
Editor: And that's 'less than' $300, i.e., no
more than $299.99. A $300 gift to an employee will be caught
for FBT, whereas a $299 gift is exempt.
Example: A Melbourne Cup party
An employer holds a Melbourne Cup party for its employees and
The cost of food and drink per person is $250, and no other
benefits are provided.
If the actual method is used:
For employees attending on their own or with their spouse
– no FBT is payable (i.e., the per head cost is less than
$300) and no tax deduction will be allowed.
If the 50/50 method is used:
50% of the total expenditure is subject to FBT and is tax
Editor: The above is only a short explanation and while we
have tried to simplify the rules, we understand that it can get
complicated, so give us a call if you would like a hand.
ATO and GST compliance
The Tax Office says that GST cheats are more likely than ever
before to be caught out this year, as it plans to increase its
audits on GST refund claims by small businesses and investigate
cases of serious evasion.
It will complete an extra 11,500 cases in 2011/12 investigating
the systematic or deliberate under-reporting of GST and fraudulent
GST refund claims.
Last financial year 28 people were prosecuted for more than $17
million worth of GST-related fraud offences.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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