AVOID FBT THIS CHRISTMAS

For many businesses, the festive season is one of the busiest times of the year. Rushing to fulfil last minute orders or pushing to get a job completed before the holiday deadline can mean that any thoughts about staff gifts or an office Christmas party are relegated to the back of the queue. But when you do take time to wonder how best to recognise the contributions your valued employees have made over the past year, you'd be wise to take care to ensure your generosity doesn't trigger Fringe Benefits Tax (FBT) and end up having a more expensive Christmas than you bargained for.

In general terms, if any entertainment you provide attracts FBT, you can claim a tax deduction. Conversely, if no FBT applies, you won't be able to claim a tax deduction, nor claim GST credits for any expenses. Here are the basic rules which apply to staff gifts and office Christmas parties.

Giving gifts

There are two main points you'll need to keep front of mind when rewarding your employees with a gift this silly season:

1.       Making sure that your chosen gift qualifies as being a "minor benefit"; and

2.       Keeping gifts below the $300 limit, above which FBT (49%) will apply.

Minor benefits

In short, a benefit is considered minor, and therefore FBT-exempt, if it:

·         Is given to a staff member or their associates (typically a spouse or partner);

·         Is given irregularly or infrequently; and

·         It's not seen as being a reward for any services rendered.

To add another layer of complexity to the Christmas stocking, not all gifts will qualify for a tax deduction as an expense if they could be classified as "entertainment". And entertainment also means recreation. For example, tickets to the theatre, movie vouchers, a weekend break away for two, front row seats at a premier game – all would be considered to fall under the entertainment category by the ATO.

Gifts and the $300 limit

Most employers won't have an issue with finding an ideal gift which will allow them to keep well below this limit. A Christmas ham, a gift certificate, a lovely bunch of flowers or the latest bestseller – all these would be classed as being legitimate minor benefits as long as they each cost below $300. On the other hand, a designer handbag or a membership to a sporting club will not only set you back significantly more, but will also incur FBT at 49%.

The idea may have crossed your mind to make a gift of cash, enabling your employee to treat themselves to something special of their own choosing. All well and good, but you need to be aware that any money exchanging hands in this way will be treated the same way as salary and wages, subject to PAYG withholding, super guarantee and payroll tax rules.

The Christmas party  

It's all about location, location, location. If you want to keep the whole event tax free, then the most tax effective way to host your Christmas bash is to hold it at your business premises – and on a week day. Doing it this way, means that the cost is unlikely to attract FBT, irrespective of how much you spend per person. The catch for this method is that it applies to current employees only.

Of course, you may want to invite staff to bring their partners to enjoy the festivities and, in this case, you'll once more need to take care to keep below the $300 limit if you're hoping it will still qualify as a minor benefit and thereby remain shy of attracting any FBT.  

Having a party at the office also means there's good news in this scenario when it comes to taxis. Any taxi travel that either begins or ends where an employee works will not attract FBT, so you can pile everyone into a cab to send them home safely and not worry about this extra cost.

Partying elsewhere

Not all places of employment lend themselves to being the kind of venue you'd want to host a Christmas party, no matter how well you might deck the halls. If your party will be held away from your business premises, keep to below the $300 limit for everyone – employees and their partners – to keep the all important minor benefit status.

The main point to take into account here is that the $300 limit referred to in these circumstances is the total of all meals, drinks, entertainment and any associated benefits per person, so you'll need to keep a close eye on costs as they add up.

Do remember, however, that sending people on their merry way by taxi once the evening is over may incur FBT if they are going home and not back to the office.

What about gifts given at the Christmas party?

The ATO will allow both party and gift to be classified as minor benefits and FBT-exempt if each is considered separately to determine that they are less than the magic $300 in value.

Whichever way you look at it, celebrating Christmas can be expensive all round. If you'd like advice on the best and most cost effective way for you and your employees to celebrate this festive season, get in touch with the KDA Group on 02 4861 8383 and speak to one of our consultants.