Are your christmas parties and gifts subject to Fringe Benefits Tax?
Introduction
Christmas parties. Employee gifts. Festive celebrations.
It’s the season to celebrate your team’s hard work and show gratitude. Organising a party, giving thoughtful gifts, or planning other perks feels like the perfect way to say “thank you.”
But along with the festive cheer comes the fringe benefits tax. Understanding what’s deductible, what isn’t, and when FBT applies can quickly complicate things. The rules aren’t always straightforward, and figuring them out can feel as demanding as organising the celebration itself.
As a business owner, your time is valuable, and navigating tax regulations shouldn’t overshadow the joy of giving back. With a little guidance, you can show appreciation for your team while staying within your budget and meeting your tax obligations.
In this blog post, we will discuss how FBT applies to holiday perks and share practical tips to help you easily manage your tax responsibilities.
Key takeaways
FBT is a tax employers pay on non-cash benefits provided to employees, their families, or associates.
The FBT year runs from April 1 to March 31, requiring employers to self-assess their liabilities and lodge a return if liable.
Parties held at external venues (e.g., restaurants) may attract FBT unless per-person costs are below $300.
Employee gifts valued below $300 per person are generally exempt from FBT; gifts over $300 are subject to FBT.
Businesses should plan festive budgets, track costs, and consult tax professionals to manage FBT obligations effectively.
What is fringe benefits tax?
A fringe benefits tax is a tax employers pay on non-cash benefits to employees, their families, or associates. These benefits differ from salary or wages and are taxed separately from income tax based on their taxable value. Employers must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge a return if liable.
Examples of fringe benefits include:
- Allowing private use of a company car.
- Paying for an employee’s gym membership.
- Reimbursing school fees or other personal expenses.
- Providing entertainment such as concert tickets.
- Offering discounted loans to employees.
- Implementing salary sacrifice arrangements.
Certain benefits, like salaries, superannuation contributions, and termination payments, are exempt. FBT liability is calculated by “grossing up” the value of benefits to reflect their pre-tax equivalent and applying a tax rate of 47%.
Common christmas benefits and their FBT implications
When providing Christmas benefits, it’s important to understand how the Fringe Benefits Tax (FBT) applies to each offering. Below is a detailed look at some of the most common Christmas benefits that may attract FBT and their implications.
The minor benefits exemption
The minor benefits exemption allows businesses to reduce their FBT liability by excluding certain low-cost, occasional benefits from taxation. This exemption applies when:
- The benefit costs less than $300 per person (including GST).
- It is provided infrequently and irregularly (not as a regular or routine arrangement).
This exemption often covers Christmas parties and gifts, provided the total cost per person for each benefit is below $300. For instance, if a Christmas party costs $200 per person and each employee receives a $50 gift, the party and the gift can qualify for the exemption, as they are treated separately under the threshold.
Christmas parties
If your business holds a Christmas party, the Fringe Benefits Tax (FBT) implications depend on the location and attendees.
Christmas parties held on business premises
Hosting a party on your business premises during a working day offers several FBT advantages, provided specific criteria are met:
- Employees only: Food and drinks provided exclusively to current employees on business premises are exempt from FBT when served during a working day.
- Associates: If associates (such as employees’ partners) attend, their food and drinks cost is exempt from FBT if it qualifies as a minor benefit. A minor benefit means the cost per person is below $300, and it would be considered unreasonable to treat the expense as a fringe benefit.
- Clients: Costs associated with clients attending the party are never subject to FBT, irrespective of the location or expense.
Example
A company organises a Christmas lunch on its business premises during a working day. Employees, their partners, and a few clients are invited. The cost per person, including food, drink, and taxi travel home, is $125.
- Employees: No FBT applies to the costs of food, drink, or taxi travel for employees, as these are provided on a working day on the business premises.
- Associates: No FBT applies to the costs for employees’ partners, as these fall under the minor benefits exemption (costs are less than $300).
- Clients: No FBT applies to client-related costs.
Christmas parties held off business premises
If you’re planning a Christmas party at a restaurant, event venue, or other off-site location, the FBT treatment differs:
- Employees and associates: FBT applies unless the per-person cost is below $300, qualifying the expense as a minor benefit.
- Clients: Costs incurred for clients remain exempt from FBT regardless of the location.
Example
A company holds a Christmas party at a restaurant. Employees, their partners, and clients attend. The cost per person is $250, which includes food, drinks, and transportation.
Employees and associates: No FBT applies as the cost is below $300 and meets the minor benefit criteria.
Clients: Expenses related to clients are not subject to FBT.
Christmas parties gifts for employees
In addition to parties, many businesses present employees with gifts during the festive season. The FBT treatment for gifts depends on their value:
- Gifts valued below $300 per person and deemed minor benefits are exempt from FBT.
- Gifts valued $300 or more per person are subject to FBT.
- Non-entertainment gifts (e.g., gift cards, hampers) may also be tax-deductible if FBT is paid.
Income tax and GST credits
The tax treatment of Christmas party expenses also extends to income tax deductions and GST credits:
- If the party or gifts are exempt from FBT (e.g., due to minor benefits exemptions), the business cannot claim income tax deductions or GST credits for the expenses.
- If FBT is paid on the expenses, the business can generally claim an income tax deduction and GST credits for the costs incurred, including the FBT paid.
Don’t let tax complexities hold your business back!
Transport (Taxis or Rideshares)
Providing transport for employees to and from your Christmas party can have different FBTs implications depending on the location of the event:
On-premises parties: If your Christmas party is held at your business premises and you provide taxi or ride-sourcing transport for employees to travel home after the event, this travel is exempt from FBT, as it constitutes a single trip ending at the workplace.
Off-premises parties: For parties held off-site, the FBT exemption for taxi or ride-sourcing travel applies only if the trip is directly between the employee's home and the workplace. Therefore, transportation between the party venue and the employee's home may not qualify for the exemption and could be subject to FBT.
Corporate events and recreation days
Hosting events such as corporate golf days, river cruises, or other recreational activities as employee rewards are classified as entertainment benefits. If the total cost per person exceeds $300, FBT may apply unless the benefit qualifies for an exemption, such as the minor benefits exemption.
Take the stress out of FBT planning!
Methods to calculate FBT for christmas entertainment
When providing Christmas entertainment, businesses must calculate the taxable value of benefits to determine the Fringe Benefits Tax (FBT). Below are the methods available for calculating FBT on entertainment-related expenses:
Actual value method
The actual value method calculates FBT based on the cost incurred for employee and associates benefits.
- Taxable value: The amount paid for food, drink, or recreation, including associated travel or accommodation, is considered the taxable value.
- Apportioning costs: If benefits are provided to employees and non-employees (e.g., clients), only the portion for employees and their associates is subject to FBT. Costs can be apportioned on a per-head basis if necessary.
If a business reimburse an employee for entertaining three clients and the total costs $400, 25% of the amount ($100) is subject to FBT, as it represents the employee’s share. This method is often used for events like Christmas parties, where costs can be directly attributed to specific attendees.
Meal entertainment valuation methods
If the entertainment provided involves food, drink, or related travel/accommodation but excludes recreation (e.g., golf days or cruises), businesses can classify it as meal entertainment and choose one of the following valuation methods:
50/50 split method
- Taxable value: FBT is applied to 50% of the total meal entertainment expenditure, whether for employees, associates, or clients.
- Applicability: This method simplifies calculations but may result in higher FBT liability since client costs, typically exempt, are included in the 50% calculation.
12-week register method
- Record-keeping: Maintain a register for a continuous 12-week period, detailing costs and recipients of meal entertainment.
- Taxable value: Calculate the percentage of expenditure on employees and associates during this period. Apply this percentage to the annual meal entertainment expenditure to determine the taxable value.
Strategies to maximise FBT benefits
Here are the strategies to maximise FBT benefits this festive season:
Set a budget and track costs: Plan a budget for festive benefits and ensure you calculate the total cost per person, including food, drinks, and transport. Tracking these costs helps you determine whether the minor benefits exemption applies and manage FBT obligations effectively.
Keep detailed records: Whether it’s a party or a gift, make sure you have clear records of costs and who received the benefits. This will be crucial for tax time.
Non-entertainment gifts: When in doubt, non-entertainment gifts (like hampers or gift vouchers) can often be FBT-exempt and may qualify as tax-deductible.
Consult an expert: Work with tax professionals to maximise benefits and ensure alignment with evolving FBT regulations while maintaining compliance.
Conclusion
The festive season is a time to celebrate, give back, and show your team how much you value their hard work. At CleanSlate, we’re dedicated to helping businesses make the most of this joyous time without worrying about tax complexities overshadowing the fun.
Our tax accounting experts provide tailored advice to ensure your Christmas parties and employee gifts are planned strategically, keeping your business compliant while optimising tax benefits. From understanding exemptions to simplifying FBT calculations, we take care of the details so you can focus on what truly matters—celebrating your team.
Let CleanSlate be your trusted partner in making this holiday season memorable and stress-free. Reach out to us today to start planning smarter together.
