With festivities soon in full swing, it’s timely to review Fringe Benefits Tax (FBT) so the ‘big’ in your ‘big celebration’ doesn’t explode.
Nothing puts a damper on celebrating as an unexpected query from the taxman. As a quick reminder, FBT is applicable to employer benefits provided to employees, their family or other associates.
Some key things to consider, when planning your staff Christmas celebrations:
Where is the party?
To be FBT-free, the event needs to be held on work premises and on a work day as this satisfies the exempt property benefit. Notably there is no GST claimable nor tax deduction.
If the party is not on work premises the opportunity to be FBT-free still exists by ensuring the cost per head links to the minor and infrequent rule. This governs that large-scale events need to be relatively infrequent during a given year.
Why is cost important?
When the event cost is less than $300 including GST despite being held at non-work premises, the event is FBT-free given this amount satisfies the minor and infrequent rule. There is no tax deduction nor claimable GST.
Alternatively, when the cost is $300 or more including GST, FBT is applicable as is a tax deduction and the ability to claim GST.
What about travel?
Regardless where the event is, transport between the event and the employees home will be FBT-free due to a specific exemption however, there is no deduction when the travel relates to the provision of entertainment.
Which gift is best?
Employee gift choices can be tricky, and this is where the entertainment vs non-entertainment clarification is of primary concern.
As a quick test, if the item would be expected to be consumed at home, it’s classed as non-entertainment which means it’s usually FBT-free and tax deductible. Examples include gift hampers, wine, perfume, gift vouchers.
As a comparison, entertainment gifts are viewed more as ‘experiences’ and are FBT applicable, unless they satisfy the minor and infrequent criteria (i.e. less than $300 including GST). Examples of these include tickets to sporting events, movies, concerts or holidays.
Importantly the rules around gifts are different for your clients and suppliers. Both entertainment and non-entertainment categories are FBT-free however they differ in available deductions. Deductions and GST claims are only applicable to non-entertainment gifts.
Another noteworthy point is where the 50/50 method is used to value meal entertainment for FBT purposes, different rules may apply, however gift hampers and events held on work premises may still be fully exempt from FBT.
So, we recommend you celebrate with your employees by:
- making sure the event cost is less than $300 including GST per head
- select non-entertainment gifts as priority
- know your FBT implications so you can enjoy the party
Need to know more? Contact our Tax Director Michael Bode to discuss your scenario on 1300 795 515 or MBode@prosperity.com.au.