Planning your work Christmas party can be a huge task and Fringe Benefit Tax can be confusing and add up quickly if you’re not careful. So it’s important to take advantage of all the tax exemptions you are entitled to during this process.
In this article, we will discuss how Fringe Benefit Tax works and provide our top 5 tips on how to make your Christmas party exemption-friendly
What is Fringe Benefit Tax (FBT) in Australia?
Fringe Benefit Tax is a tax that employers have to pay on non-cash benefits provided to employees. Fringe Benefits are the perks given by an employer, such as gifts or free food and drinks at parties or work functions. There is a Fringe Benefit Tax exemption limit each FBT year (April 1 – March 31).
If the cost of your Fringe Benefits is under the current threshold, you don’t pay FBT on them. It’s important that you understand your Fringe Benefit Tax exemption limit, and make sure you don’t go over it so you can reduce the amount of FBT you have to pay.
1. Stay within your limits
Work Christmas parties can be considered a ‘minor benefit’ for your employees according to the ATO’s FBT guide. This means that if the total value of the party or gift is less than $300 including GST per employee or associate, then there is no payable tax on the benefit. The minor benefit exemption can apply to both employees of the business and associates, such as partners, who are invited to the event.
It is important to note that if a benefit is deemed to fall under the category of ‘meal entertainment’, you are still required to pay a calculated FBT. Understanding what benefits and exemptions exist is crucial to remaining compliant with your legal requirements as an employer.
2. Where is the best venue for a work Christmas party?
When deciding on the venue for your work Christmas party, it can pay to consider hosting the event on your work premises where you will be entitled to property exemption.
Choosing to host in your own establishment means any food and drink, including alcohol, is not subject to FBT, as opposed to these benefits provided on a third party premises which require FBT to be paid. GST credits and income tax deductions are not applicable to these expenses.
3. Choosing the right gift for employees
Entertainment gifts provided to employees in Australia are subject to FBT. In order to avoid this cost, employers can opt for ‘non-entertainment’ gifts, which can include hampers, gift vouchers, bottles of alcohol, etc.
To determine whether employee gifts are classified at entertainment or non-entertainment, see the FBT guide for a set of identifying questions including why, what, when and where food or drinks are being provided to employees
5. Record your expenses
Ensure all expenses are recorded and organised, with expenses such as entertainment, meals, gifts, etc. kept separate.im to keep costs within the limit of the FBT exemption. Your records must include the taxable value of each fringe benefit provided to each employee, the method of allocating the taxable value, and evidence that 100% of the taxable value of the benefits has been allocated to employees.
You must also keep records if you want to take advantage of various exemptions or concessions that reduce your FBT liability. These documents must also be kept for five years from when the relevant FBT return is lodged.
The best way to plan your work Christmas party and make use of Fringe Benefit Tax exemptions is to host your party on your business premises, and give staff non-entertainment gifts that cost less than $300 per employee. Minimise your FBT without minimising the fun.
If you’re still not sure about your Fringe Benefit Tax requirements, and how you can reduce them, get in touch with QCA today!