We all like to party at Christmas. Businesses want to ensure their teams have a good time so come up with different concepts each year.
This year though will be a bit different as many businesses will do a bit extra to try to forget the year we have just had. Expect a lot of drinking is my prediction.
This year the ATO has been your best friend. Payment plans are being authorised, late payments fees cancelled, and they seem to talk to you with a smile instead of the usual scowl you could feel down the phone.
But don’t be fooled into thinking this is the new face of the ATO because this Christmas the ATO may come back to haunt you as the Ghost of Christmas FBT.
This year the WOW Advisors Team will close their office for the day on Friday 11th December and go away for an extended weekend of food, drinks (obviously), swimming when not drunk (which will not be often) and something to do with a golf club.
So, this is traditionally what businesses do:
- Have a staff Xmas Party for their team
- Give out gifts to customers and their team
The last thing on one’s mind is what the ATO thinks and if they should get a slice and join the fun.
Most businesses make the mistake of thinking these costs are automatically tax-deductible. But because we are dealing with the Ghost of Christmas FBT it is not that simple.
These costs can either be not deductible for tax or subject to Fringe Benefits Tax, or both or neither. And you are supposed to know which is which.
I thought I would explain as best I can a range of different situations surrounding work Christmas parties and gifts and what it means for tax.
- Christmas parties
Christmas parties attended by employees and their families/ friends have the following rules.
The ATO classifies this as entertaining. I can see where they are coming from but I am not entertaining my team – I am thanking them for a fabulous job they did during the year. Especially this year. But I digress.
If it is classified as entertaining it is subject to FBT (fringe benefits tax) which is payable at a whopping 47%.
FBT is an additional tax paid by employers for some benefits, such as entertainment, that they provide to their team. But as I said it is not so simple.
Work Christmas parties are exempt from FBT
- If they are held during a business day, on work premises and only employees attend. To me a bit boring but maybe that what the ATO do so they think everyone should suffer or cost less than $300 per head.
- For Christmas parties held off business premises, the benefit is exempt from FBT only if the cost/head for the employee (and friend an family is less than $300.
The following table steps through these situations in more detail.
|
Situation |
Does FBT apply? |
| A Christmas party is held on a working day at your business premises and only employees attend | There is no FBT payable as this is an exempt benefit. BUT There is also no tax deduction. |
| A Christmas party is held on a working day at your business premises and employees as well as their families attend. The cost of food and drinks is under $300/head | Employees – there is no FBT payable as this is an exempt benefit BUT no tax deduction.
Families/Friends of employees – there is no FBT payable as the cost/head is less than $300 so the BUT no tax deduction |
| A Christmas party is held at a local restaurant and only employees attend. The cost of food and drinks is under $300/head | There is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. Again, no tax deduction |
| A Christmas party is held at a local restaurant and only employees as well as their families attend. The cost of food and drinks is under $300/head | There is no FBT payable as the cost/head is less than $300 so the minor benefit exemption applies. There is no tax deduction. |
| A Christmas party is held at an expensive restaurant in the city and the 7-course degustation menu with matching wines is ordered. Only employees attend the party. The cost of the 7-course degustation menu with matching wines is $350/head | FBT is payable in respect of the employees and their families apply, given that the benefit is more than $300/head. BUT the cost is an allowable tax deduction. |
| A Christmas party is held at an expensive restaurant in the city and the 7-course degustation menu with matching wines is ordered. Employees and their families attend the party. The cost of the 7-course degustation menu with matching wines is $350/head | FBT is payable in respect of the employees and their families given that the benefit is more than $300/head. BUT the cost is an allowable tax deduction. |
Think of it this way – if FBT is payable, in most cses you can also receive a tax deduction for the cost of the benefit.
What if clients, customers or patients attend?
Again, not so simple. The rules are different.
In all cases, regardless of the cost of the party, entertaining clients is not subject to FBT BUT the cost is not tax deductible. This means you can spend more or less than $300/head on your Christmas party, and for clients their lunch will be exempt from FBT but not tax deductible.
But the $300 per head can be useful and if used correctly can mean costs of more than $300 not being subject to FBT
Let’s take an example of a going to lunch for $250 per head. But to get there you decide to go in several pink limousines. Hideous I agree but that’s what Christmas does to us. It’s called the silly season for a reason. The cost of the ride is $100 per head.
This means the total cost is $350 and looking at subject to FBT. Or is it? You see if the charge is on one invoice then is it subject to FTB, but if it is on two separate invoices it is not.
The $300 per head is per event so as long as all event you want o do cost less that $300 per head not of them will be subject to FBT. That is cool.
2 Christmas Gifts
Is a gift a gift or entertainment?
Again because we are dealing with the ATO we cannot have anything simple.
Gifting is tricky because a gift could be a gift, or it could be entertainment.
A gift generally includes things like a chocolate box, gift voucher, pen or Christmas hamper. On the other hand, entertainment includes items such as movie tickets, concert tickets, theatre tickets etc. I appreciate not many people are going to these events but then again, we had 54,000 people at Suncorp Stadium for Origin so who knows.
So you have to work out if it is a gift or entertainment. Get it wrong and the Ghost of FBT could be taking your presents away.
Gifts that are Gifts
Gifts provided to employees are subject to FBT, unless the cost of the gift is less than $300 but you cannot claim a tax deduction.
Where gifts are provided to clients, they are not subject to FBT and are tax deductible regardless of spend.
Gifts that are Entertainment
These items provided to employees are subject to FBT and tax-deductible, unless the cost of the gift is less than $300.
The difference arises, however, in terms of clients. Where these items are given to clients, they are not subject to FBT and not tax deductible, regardless of spend which to be honest is a bit of a mixed bag.
Need Help?
It’s a bit tricky this FBT business so if you need help, let us know
