Christmas party celebrations and Fringe Benefit Tax
Are you planning to take your employees out for a well-earned meal or host an end-of-year Christmas party? If so, there are some key Fringe Benefit Tax (FBT) implications to keep in mind to ensure you don’t end up with a nasty surprise when reporting season arrives.
What is FBT?
FBT is a tax that is levied on certain benefits you may provide to your employees. It can end up being quite costly if you aren’t eligible to apply any exemptions. FBT is separate to income tax and can end up doubling your costs.
One of the most common expenses liable for FBT is entertainment.
What is Entertainment?
Entertainment refers to activities that are provided for enjoyment or recreation, such as meals, drinks, accommodation, and tickets to events. However, not all these types of expenses are considered entertainment.
These types of expenses usually wouldn’t be considered entertainment:
- Light meals provided in a non-social context (e.g., morning tea, coffees, catering a training session).
- Meals and accommodation when traveling for business.
However, if these involve alcohol then the ATO takes the view that it’s most likely entertainment.
There are also a couple of exemptions which can apply to entertainment in some circumstances which may reduce your FBT liability.
If you’re providing entertainment to your employees and/or their family that do not fall into the below categories, it’s likely that you will be liable for FBT.
- Minor & infrequent benefits: This allows employers to provide their employees with infrequent benefits without incurring any FBT as long as the value is less than $300 (inclusive of GST). The threshold applies for each employee and to each one-off event separately – not to the total entertainment expense for the year. So, you can pay for your employees Christmas party and also a team bonding activity during the year provided each activity costs less than $300 per person. However, if you take your team to the pub every Friday – this wouldn’t be considered infrequent, so the exemption won’t apply!
- Property benefits: This allows employers to provide their employees with food or drink on their work premises during a normal working day. Events such as lunch or fundraising morning tea would be included but also Friday night drinks if you stay on the business premises.
What about tax deductions & GST?
In the first instance entertainment isn’t a deductible expense for income tax. However, if you are liable for FBT on entertainment you can make a claim. It’s important to note that if the entertainment benefit is FBT exempt, these expenses are not tax deductible, and you cannot claim back the GST on these expenses.
Please keep the above in mind when providing entertainment to your employees, especially as we make our way into the festive season. If you have any questions or require further clarification on entertainment, please contact your WLF advisor.