The ATO has reminded employers to consider Fringe Benefits Tax implications of parties or events.
FBT depends on the amount spent per employee, when and where the event is held, the value and type of gifts provided, and who attends (just employees or with partners, clients or suppliers).
If FBT is applicable, records need to be kept, including how you worked out the Taxable value of benefits per person (a ‘minor benefit’ is one costing less than $300 per head, inclusive of GST).
This article shows the tax implications of holding a Party, whether at the business premises or off-site and providing employees (including working directors) with gifts. In the examples that follow, it is assumed that the business does not elect for FBT purposes to use either the ’50-50 split’ or the ’12 week register’ methods.
If FBT is payable, it is calculated as 2 x Benefit, which is taxed at 47%, but the tax saved is only 25% of the cost. Not worth the paperwork!
These are classed as ‘entertainment benefits’, and are not tax deductible unless they are also subject to FBT, unless the minor benefits exemption of $300 applies. A minor benefit is one provided to an employee or their associate, like a spouse, on an ‘infrequent or irregular’ basis, and the cost is less than $300 inclusive of GST per head or per benefit provided.
Held on business premises on a working day
Held off business premises
Each ‘minor benefit’ is considered separately, even if the total cost per person exceeds $300.
Generally, the best tax outcome for the employer is to give non-entertainment gifts that cost less than $300 inclusive of GST per employee. The cost is tax-deductible, no FBT applies, and GST credits can be claimed. Gifts are usually exempt from FBT because they are not provided ‘on a frequent or regular basis’, and the gift is not principally for services rendered. Gifts classified as entertainment, which includes recreation, are not tax deductible and GST credits cannot be claimed, unless FBT is paid and even if considered as minor and infrequent.
Non-Entertainment Gifts Hampers, bottles of wine or spirits, gift vouchers, flowers, etc.