By James Dunn
There's no need to cancel Christmas. The tax office has some rules, but there is still options to let your hair down.
With Christmas cheer coursing through the business world, party season in full flow and many employers – or, more likely, their PAs – busy packing the Christmas hampers to be handed out to clients and staff, accountants advise a quick reacquaintance with income tax laws on the provision of fringe benefits.
Adrian Raftery, chief executive officer of national accountancy network accountantsRus, says Christmas parties are exempt from fringe benefits tax (FBT) as “minor benefits” if the total value of the benefit to the employee, including any family member attending, is under $300, including GST.
A minor benefit is defined as one that is provided infrequently and irregularly, and is valued at less than $300. If gifts are distributed at the Christmas party this is included in the $300 minor benefit limit.
“However if gifts are distributed on another occasion they are not included in the $300 benefit. For this reason it may be more tax-effective to give gifts on another occasion,” hints Raftery.
If companies decide to distribute gifts at Christmas, Raftery says they should consider gifts that are tax-deductible and exempt from FBT – for example, briefcase, laptop computer or a subscription to a trade journal.
Joe Kaleb, chartered accountant, registered tax agent and chief executive of tax and business information website australianbiz.com.au, says the most tax-effective approach to a Christmas party is to hold it on the business premises on a working day.
“Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. However, where employees’ families (that is, associates) also attend and the cost attributable to the associate is $300 or more including GST, there is FBT only on the associate’s portion of food and drink, and a tax deduction and GST credit can be claimed on that portion,” says Kaleb.
“The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost,” he says.
“Where the Christmas party is held on the business premises on a working day with only employees and clients attending and only finger food or a light meal and no alcohol is provided, then the entire cost is tax deductible. There is no FBT and a GST credit can be claimed on the entire cost.”
Christmas parties held off the business premises are exempt from FBT where the cost for the employee and their associate is each less than $300 inclusive of GST, but no tax deduction or GST credit can be claimed. “The cost of clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost,” says Kaleb.
Benefits provided to employees at the Christmas function are considered separately when applying the $300 minor benefits exemption. For example, say a Christmas party is held at a restaurant costing $220 per head, and at the same time employees are given a Christmas hamper – considered a “non-entertainment” gift) – costing $82.
Although the combined cost is more than $300, Kaleb says the provision of both benefits will usually be exempt from FBT under the minor benefits exemption.
“For the Christmas party expenses, the business will not be entitled to claim either a tax deduction or a GST credit,” he says. “However, a tax deduction and GST claim should be available on the cost of the hamper, as this is not considered to be ‘entertainment’.”
