How to ensure your End of Year Christmas Party and Gifts are tax deductable

With the holidays and Christmas rapidly approaching, some well-earned festivities are certainly on the table. Employers are busy preparing for their end of year party or choosing gifts for their staff. With this in mind, it is important to consider some of the easy ways to help stay on the right side of the dreaded Fringe Benefits Tax (FBT).

Firstly, what is Fringe Benefits Tax (FBT)?

Before we get started, let’s clarify what FBT is. FBT is a tax that employers pay on benefits paid to an employee (or their associate, such as a family member) in addition to their salary or wages. FBT is calculated on the taxable value of the benefits employers provide. Often this tax is placed on items such as entertainment, gym memberships, discounted loans and health insurance.

So what does this mean for the office party and gifts? We’re glad you asked; here are some key things to keep in mind.

How Much Should You Spend? Keep the price under $300.

The first thing to consider as an employer is the cost of any party or gift. Suppose the per-head cost is less than $300 (including GST) per employee/associate, and they are not regularly provided with similar benefits by the employer; in that case, the provision of these benefits will be considered a ‘minor benefit’ and exempt from FBT. It is also important to note that as this is on a per-head basis, rather than per employee, if associates such as your employee’s partners also attend your end of year event they are included in determining the per head cost – which will help keep that cost down.

Employers should also be aware that contractors engaged predominantly for labour are considered employees for FBT purposes – consider this before finalising the guest list.

Where to Hold the Party?

Everyone loves a fabulous new venue, but it might be worth throwing the party at work. An employer can spend more than $300 per-head and remain exempt from FBT, provided the event is held on the business’ premises on a working day. Food and drink, including alcohol, will be exempt from FBT with no dollar limit – but for employees only, not for partners in this scenario. Partners and other associates attending may give rise to FBT if the per-head cost exceeds $300.

What gifts are exempt from FBT?

It is best to steer clear of giving any gifts to employees and associates that could be considered ‘entertainment’ – such as movie, sport or concert tickets for example, as these are not eligible for the $300 exemption and will likely give rise to FBT.

Non-entertainment gifts such as gift vouchers, hampers, or bottles of wine that cost less than $300 (including GST) per employee will be exempt from FBT and tax deductible to the employer. Also, if an employer provides both a gift and holds a party, the value of the benefits are considered separately for purposes of the $300 threshold.

Gifts to employees will also be exempt from FBT if they would be considered deductible should they have purchased them themselves. For example, an employer may want to reward specific employees with a new phone or computer to perform their duties, and can do so with no FBT consequences, and a deduction for the expenditure in line with the employee’s proportionate work related use of the item.

No surprises here- Get the party started! 

Of course, employers should reward their employees how they see fit after a very long couple of years for everyone. However, employers can hopefully find the best way to do that while avoiding any tax surprises by being aware of the above key criteria.

However, this is a very complex area of taxation, especially if you have other potential FBT exposures in your business, like entertainment expenditure, so please do not hesitate to contact your Morrows advisor should you have any questions or wish to discuss your business’s individual circumstances.