With the 2017/18 festive season fast approaching, it is worthwhile having a refresher of the Fringe Benefits Tax (“FBT”) implications associated with celebrations and gifts.
The provision of a Christmas party for employees will be subject to FBT (at a rate of 47% on the grossed-up taxable value) unless the Christmas party represents an ‘exempt property benefit’ or an ‘exempt minor benefit’.
Exempt property benefits
Food and drinks consumed at Christmas parties can be exempt from FBT. If a Christmas party is held at the business’ primary place of residence and on a business day, the supply of food and drink will not be subject to FBT.
Gifts of any kind may also be exempt from FBT.
The cost of the Christmas party will not be deductible for tax purposes in these circumstances. However, the cost of the gifts provided to employees may be deductible so long as the gift itself doesn’t represent “entertainment”.
Example 1 (provided by the ATO) – A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine.
The implications for the employer in this situation would be as follows:
| If… | Then… |
| current employees only attend | there are no FBT implications as it is an exempt property benefit |
| current employees and their associates attend at a cost of $180 per head | • for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
• for associates – there are no FBT implications as the minor benefit exemption applies* |
| current employees, their associates and some clients attend at a cost of $365 per head | • for employees – there are no FBT implications as it is an exempt property benefit• for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
• for clients – there is no FBT payable and no income tax deduction |
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Exempt minor benefits
If the Christmas party does not satisfy the criteria of being an ‘exempt property benefit’ (eg it is held at an offsite venue and/or is not held on a working day), the Christmas party may still qualify as an ‘exempt minor benefit’. In order to be an ‘exempt minor benefit’, the cost per benefit per employee (and potentially per associates such as family members, partners etc) must be less than $300.
If the employer also provides gifts at the Christmas party (eg bottles of wine or gift cards), the provision of the gifts may separately qualify as an ‘exempt minor benefit’ if the value of the gift itself is less than $300. This is because for the purposes of the exempt minor benefits exemption, the value of each benefit provided (ie the Christmas party and the gift) can separately qualify as an ‘exempt minor benefit’ if the value of each separate benefit falls below the $300 threshold.
If the Christmas party represents an exempt minor benefit, the cost of the Christmas party will not be deductible for tax purposes. The cost of the gifts provided to employees may still be deductible however if the gift itself doesn’t represent “entertainment”.
Example 2 (provided by the ATO) – Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.
The implications for the employer in this situation would be as follows:
| If… | Then… |
| current employees only attend at a cost of $195 per head | there are no FBT implications as the minor benefits exemption applies* |
| current employees and their associates attend at a cost of $180 per head | there are no FBT implications as the minor benefits exemption applies* |
| current employees, their associates and clients attend at a cost of $365 per head | • for employees – a taxable fringe benefit will arise• for associates – a taxable fringe benefit will arise
• for clients – there is no FBT payable and the cost of providing the entertainment is not income tax deductible |
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
No FBT exemption applies
If none of the above exemptions apply, the provision of the Christmas party and the provision of gifts will be subject to FBT if provided to employees. In this instance, the FBT associated with the provision of food and drinks can potentially be calculated under the 50/50 split method.
The cost of the Christmas party and gifts will be deductible for tax purposes to the extent that FBT is payable on them.
Client gifts
The costs associated with providing Christmas gifts to clients (eg hampers, movie tickets, gift cards etc) are not likely to be subject to FBT. Most client gifts will be deductible for tax purposes unless the gift represents “entertainment”.