Top tips for keeping the tax man happy this Christmas
Monday, November 16, 2015/
We’re heading into the Christmas party season. Over the next few weeks, thousands of Australian businesses will pay for their staff to let their hair down at the annual end of year celebration.
There will be embarrassing moments, regrets and probably a hangover or two. But if your business is forking out for a festive fling is a tax hangover also looming on the horizon?
We’ve done the hard work for you and here are our top ten tips for avoiding an unwelcome festive season tax bill:
- If you throw a Christmas function for your staff off-site, for example at a hotel, restaurant or function centre, the cost of providing the party would normally be treated as a fringe benefit, with fringe benefits tax (FBT) payable by the employer.
- However, if the cost per employee is less than $300, no FBT will be due. This is because of the so-called minor benefits exemption. This exemption also applies if spouses or partners come along to the party.
- The minor benefits exemption applies to each benefit provided. What this means in practice is that if you’re feeling generous and spend $290 per head on the party and then give a gift to each employee valued at a further $290, then both expenses are free of FBT.
- If you spend more than $300 on the function, the whole lot will be subject to FBT, not just the excess.
- The costs (such as food and drink) of a Christmas party are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. If spouses or other guests of employees are entitled to attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption (see above).
- If your business also covers the cost of taxi fares to and from the festivities, these costs will count as part of the $300 per head limit if the function is off-site but will be exempt from FBT if the party is at your premises.
- The bad news is that if the cost of your Christmas party is exempt from FBT, it isn’t tax deductible for income tax purposes. Nor can the business claim goods and services tax credits for the costs incurred.
- Confusingly, even though gifts are also covered by the FBT exemption, they generally ARE tax deductible and a GST credit can be claimed.
- If you hold a bash for clients and contacts, there is no FBT but the costs are not income tax deductible.
- None of this generally impacts on the employee’s tax position. They can eat, drink and be merry knowing that the tax consequences usually fall only on the employer!
So, there you have it. Who would have thought humble Christmas celebrations could cause such a tax headache? If nothing else, before you sip your first celebratory champagne, it would pay to have a chat to your accountant to ensure you know exactly where you stand tax-wise.
Mark Chapman is director of tax communications at H&R Block.