Throw on the Santa Claus hats and bring on the cheer! Christmas is just around the corner and with that means office Christmas parties and end of the year celebrations. But what about the ‘forgotten costs’ in entertaining your employees? The tax implications of Christmas at work can result in a bit of financial hangover. In this week’s post we talk a little bit about Fringe Benefits Tax (FBT) and how it might affect the planning of your Christmas celebrations this year.
What is a Fringe Benefit ?
This is a ‘payment’ to an employee but in a different form to salary and wages (such as parties and gifts). It applies to benefits that employers provide to their employees and employees’ associates (e.g. partners & children).
Party, Party!
Whether you’re likely to have an FBT liability depends on when and where you hold your function, who attends and how much the function costs. Usually Christmas parties fall into the category of “entertainment benefits”.
If you hold your event on a work day at your business premises and only your employees attend, costs such as food and drink are FBT-exempt regardless of the cost per employee. However, if you are allowing employees to bring a plus one or more, expenditure on entertaining your employees’ family would be a taxable fringe benefit.
If your function is NOT held on a work day or at your business premises, for example, at a local restaurant), there can be further FBT issues.
However, if you contain your costs to under $300 per person for your employees and employees’ associates, you may be able to reduce your FBT liability by relying on the minor benefit exemption. For example, if the cost per person includes the cost of food and drink and other items such as the cost of transport to venues and transport home (e.g. by taxi) and totals $250, then the expenses are likely to be FBT-exempt.
Gift giving
If you present gifts to your employees at a function, the Australia Taxation Office (ATO) now consider them separately from the cost per person with regards to the function. You may be able to rely on the minor benefits exemption for a Christmas gift of less than $300 in value, which is considered to be a separate benefit from the event itself.
If you don’t give out gifts at the function but at some other time, it’s possible that you may still be able to rely on the minor benefit exemption at that time – if the value of each gift is less than $300. The type of gift also factors into FBT – check first whether the type of gift is given for non-entertainment (e.g. hampers) or entertainment purposes (e.g. tickets to a theme park).
What’s tax-deductible?
According to the ATO, generally the cost of providing a Christmas function is income tax-deductible only to the extent that it is subject to FBT. FBT itself is also income tax-deductible and is currently payable at a rate of 49% (in years ending Mar 31, 2016 and 2017) on the taxable amount of the benefits provided.
When working out what you can claim as a tax deduction, you will need to watch out for certain types of expenditure. For example, any costs that are exempt from FBT and the costs of entertaining customers that are not subject to FBT and aren’t deductible. If unsure, its best to speak with your Bookkeeper or Accountant on how to record the expenses.
The Online Bookkeeping Advantage
It is important to keep good records so that any potential FBT consequences can be identified. Having an online bookkeeper or cloud based bookkeeper can help you with ATO compliance and ensure records are kept up-to-date including:
- Invoices (detailing amount including GST)
- Dates benefits were provided
- Description of the entertainment (e.g. drinks, dinner, gifts etc.)
- Where the entertainment or benefit was provided; and
- The number of employees, associates and customers that the benefit was provided to.
Shellys Bookkeeping, conveniently located in the inner south Brisbane suburb of Coorparoo can make sure your Entertainment expenses are entered correctly ensuring your Accountant can determine any possible FBT consequence at tax time.
As you can see, Christmas celebrations and Christmas gifts can get pretty complicated as far as tax is concerned. That’s why it can be really helpful having a bookkeeper who understands the implications and can help you make the best of your Christmas budget for your upcoming Christmas celebrations.
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