As the festive season draws closer, we would like to remind businesses of the fringe benefits tax (FBT) issues associated with this time of year.
The rule of thumb is that if you provide a fringe benefit (i.e. non cash benefit) to an employee which is not exempt or concessionally taxed, you land up paying nearly the same amount in FBT for every dollar spent – it is therefore important to consider the FBT implications when providing staff gifts and hosting parties in the lead up to Christmas.
Staff gifts (e.g. hampers, gifts cards, movie tickets etc.) are generally subject to FBT unless the minor benefits exemption applies. Under the minor benefits exemption, you can provide gifts to staff up to a value of $299 (incl. GST) without incurring an FBT liability on the provision of the gift. Mistakes often seen when trying to claim this exemption include:
- The value of the gift needs to be less than $300 – if you provide a gift worth $300, the entire amount will be subject to FBT. For illustrative purposes, if you provide a gift card to an employee worth $300, the amount of FBT payable on the benefit would be $293.
- The $299 limit is GST inclusive regardless of the business being able to claim GST on it.
Morning or afternoon teas and light lunches provided in the office are generally not subject to FBT if the attendees only include employees. Furthermore, these are not considered entertainment benefits and the employer can claim a deduction for the costs incurred in relation to this.
However, if you are planning something more extravagant (e.g. providing alcohol), the following exemptions may apply:
- Functions held on business premises – these may be exempt if all attendees are employees. If you are inviting any of the employee's associates (e.g. spouse or children), their portion of the cost would be subject to FBT.
- Functions held outside of the business premises – the benefit may be exempt if the per head cost is less than $300 (including GST). The minor benefits exemption also applies to associates of the employees. It is however important to note that the minor benefits exemption can be used by businesses who use the actual method of valuing their entertainment benefits. If the business uses the 50:50 method to value its entertainment fringe benefits, the cost of the Christmas function will not be exempt under the minor benefits exemption.
INCOME TAX AND GST IMPLICATIONS
Costs incurred in relation to a Christmas function are only tax deductible where FBT has been paid. Therefore, if the business has claimed one of the exemptions above, the costs would not be deductible to the business. Furthermore, the business is not entitled to GST credits on expenses incurred in relation to the function.
This article is issued as general commentary - please contact us about your specific circumstances.