As the festive season approaches, many businesses may be starting to plan Christmas functions and thinking about offering their staff, clients and suppliers Christmas gifts. Something that is often forgotten at this time is the tax implications these bring.
Here are 10 things about providing such benefits to employees that might help make things a little clearer.
- The costs of a Christmas Party are exempt from FBT, as long as they are only provided to current employees on a working day on your business’ premises.
- If current employees invite their spouse or another associate of theirs, these costs will be subject to FBT unless these costs are a ‘minor benefit’ or satisfy the minor benefits exemption.
- Christmas parties that are provided off business premises will also be subject to FBT, unless they satisfy the minor benefits exemption.
- This exemption allows for an FBT exemption to be claimed for benefits provided, where each benefit (on a benefit by benefit basis) is less than $300 (including GST), regardless of whether it is provided to an employee or an employee’s associate (i.e. spouse or family member).
- The application of the minor benefits exemption also requires that the costs associated with the party and the provision of gifts to employees is ‘infrequent and irregular’.
- The FBT and tax implications of gifts given to employees are also dependant on where the employee decides to consume those gifts. Gifts consumed on a business premises are exempt from FBT and the employer cannot claim a tax deduction.
- A tax deduction for costs associated with the provision of Christmas parties and gifts for employees is allowable only to the extent that the cost is subject to FBT, i.e. if the cost is deemed to be FBT exempt, you cannot claim a tax deduction.
- Entertainment costs for clients are not subject to FBT. As a result, they are not tax deductible.
- Gifts provided to suppliers and clients are not subject to FBT and a tax deduction can be claimed. That is provided the gifts are not excessive, frequent or overly expensive.
- If the above seems too complicated, businesses can simplify their FBT paperwork, by electing to pay FBT on 50 per cent of all meal entertainment benefits provided in an FBT year, regardless of whether it was provided to an employee, associate or client.