The Christmas season is here! Festive celebrations, gifts and entertainment become common occurrences at the workplace during this time of year. However, most employers get a shock during the annual audit toward the end of the financial year, as they realise the overall cost of gifts and partying doubled up due to the Fringe Benefit Tax or FBT.
Even though there is no separate FBT category for Christmas celebration, not considering the implications of FBT can dampen the festive cheer. Here are a few simple tips to keep the FBT Grinch at bay and make your employees and the tax authorities happy this Christmas:
1. $300 is the Magic Figure
When planning Christmas celebrations and gifts for employees, remember $300 is the magic figure. It is the minor benefit threshold and the key to keeping your end of the year celebration tax-free.
Note: The provision of a Christmas bash and/or giving gifts to employees is considered as a ‘minor benefit’.
It’s important to note that the gifts are subjected to minor benefit exemption when only they cost less than $300. If you want to issue gift cards, make sure the value doesn’t exceed the magic number of $300. Failing to do so will make you ineligible for minor benefit exemption.
Besides, the minor benefits exemption doesn’t apply to dining out and entertainment. For example, being the generous employer that you are, you host a huge party and also give presents to everyone, the presents will be subjected to FBT deduction. However, if you can manage to limit the cost of meals and entertainment to around $290 per head, you can easily dodge the FBT bullet.
2. Choose the Right Venue
If you are looking to keep your celebration tax-free, the best thing to do is throw the party at your workplace during the work week. Moreover, try to keep the number of attendees limited to just your staff. If you want to invite family of your employees, try to keep the expense below the minor benefit threshold. Also, if you are looking for a new venue this year, it’s important to keep the cost per person below the threshold, among other things, in order to retain the minor benefit status. Furthermore, keep in mind the expense per person should be a total of everything including the meals, drink, and entertainment.
3. Consider the Invitation List
Most employers tend to overlook is that the less than $300 threshold is calculated per head and not per employee. For example, if you invite employees and their partners for Christmas dinner at a restaurant with a per-head cost of $250 (including the GST), you can get minor benefit exemption on both the employee and their partner.
The aforementioned tips are intended to help you gain insight into the complexities of FBT, particularly for Christmas parties. However, the world of FBT is quite tricky with a lot of complex exemption, concession and deduction rules. Contact Zimsen Partners today to ensure any tax effects are mitigated.