As Christmas and the New Year fast approaches, many businesses look forward to celebrating the past year with gift giving and Christmas parties for employees. Many business owners may not fully understand the fringe benefits tax (FBT) implications of providing such benefits and if you’re not informed, it could see you owing unexpected costs for your business.
What is Fringe Benefits Tax (FBT)?
FBT is paid by employers on certain benefits they give to their employees or their employees’ family or other associates. It applies even if the benefit is provided by a third party under an arrangement with the employer.
As per the ATO, examples of fringe benefits include:
- Allowing an employee to use a work car for personal use
- Giving an employee a discounted loan
- Paying for an employee’s gym membership
- Providing entertainment by way of free tickets to concerts
- Reimbursing an expense incurred by an employee, such as school fees
- Giving benefits under a salary sacrifice arrangement to an employee
FBT is different from income tax and is calculated on the taxable value of the fringe benefit received. Employers can generally claim an income tax reduction for the cost of providing fringe benefits and for the fringe benefits tax they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
How does FBT affect your end of year Christmas party?
With the end of the year fast approaching, many businesses are planning Christmas gifts and parties for staff.
There is no separate FBT category for Christmas parties and if you’re not careful, you may encounter difficulties with the ATO. When planning your Christmas party, it is important to be mindful of the following guidelines:
Exempt property benefits
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day, on your business premises and consumed by current employees. The property benefit is only available for employees, not associates.
Exempt benefits – minor benefits
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.
Gifts provided to employees at a Christmas party
The provision of a Christmas gift to an employee may be a minor benefit that is an exempt benefit when the value of the gift is less than $300.
Do you have more questions about FBT and Christmas?
Fringe benefits can be confusing and if you’re not mindful, you may be impacted by the tax implications for your business. If you have more questions, contact your Arabon accountant and they will help you answer them. It is better to be safe rather than get caught up owing the ATO following a wonderful end of year celebration.