As the holidays approach many businesses are planning for Christmas functions.
During this time, employers should be thinking about tax deductions and the fringe benefits tax (FBT). Employers often find themselves caught out for failing to understand the FBT impact of Christmas.
Employers planning a Christmas party should be aware that the Christmas party costs are exempt from FBT provided that they are:
- on a working day
- on the businesses premises
- for current employees only
However, if a spouse or associate of a current employee attends the Christmas party a FBT will arise, unless these costs satisfy the minor benefits exemption.
Employers who choose to host the Christmas party off business premises will also be subject to FBT, unless they satisfy the minor benefits exemption. The minor benefits exemption has a $300 threshold per employee, which applies to each benefit provided.
Christmas gifts can be treated separately with respect to $300 threshold. It is important for employers to take note that this means they must spend less than $300 per employee; otherwise they will be subject to FBT.
A tax deduction for costs associated with the provision of Christmas parties and gifts which are not entertainment (e.g. bottle of wine, ham, store gift card) are not subject to FBT but are deductible. If this all seems too complicated, businesses can choose to simplify their FBT paperwork.
The 50/50 split method allows for 50 per cent of costs associated with entertainment to be subject to FBT and therefore tax deductible and the other 50 per cent non-deductible regardless of whether it was provided to an employee, associate or spouse.