As we fly into our second pandemic-impacted festive season, many employers are now, more than ever, looking to bring a little bit of cheer to their employees.
But the evil Grinch that is taxation can spoil the party for employers that are not aware and not prepared.
Plan ahead to avoid a tax headache in the new year and keep your staff happy over the holidays.
Here are BDO in Australia’s top tips for maximising the joy of the festive season:
1. Choose gifts wisely
Employers can thank employees by providing a Christmas gift. The best outcome for the employer is to provide a non-entertainment gift that costs less than $300 (GST inclusive). These annual Christmas gifts are typically exempt from fringe benefits tax (FBT) because they are minor, provided infrequently and not a reward for service. A non-entertainment gift, such as a gift voucher, hamper or bottle of wine should be tax-deductible for the employer and GST credits can be claimed.
If the gift costs less than $300 but is considered to be entertainment, such as tickets to the movies, theatre or sporting event, the FBT exemption may still be available but the employer will not be able to claim a tax deduction or the GST credits.
Employers that provide a gift costing $300 or more will be subject to FBT that almost doubles the cost for the employer. Where the gift is subject to FBT, the cost of both entertainment and non-entertainment gifts is tax-deductible and GST credits can be claimed.
2. Where’s the party?
The annual staff Christmas party provides a chance for employees, which may have been isolated from their colleagues throughout the year, to come together and reconnect.
Holding the Christmas party on the employer’s business premises can stretch out the Christmas party budget. Christmas parties held on the employer’s business premises can be exempt from FBT where the employer uses the actual method to value their entertainment benefits. In this case there is no cap on the value of FBT-exempt food and drink that can be provided to employees. Note however these entertainment expenses are not tax-deductible for the employer and the GST credits cannot be claimed.
If the Christmas party is held at a venue that is external to the employer’s business premises, FBT will apply unless the minor and infrequent exemption is available. In this case the cost of the event is important. If the total cost per head is less than $300, the FBT minor and infrequent exemption can apply, but the entertainment expenses are not tax-deductible for the employer and the GST credits cannot be claimed. Alternatively if the total cost per head is $300 or more, FBT will effectively double the cost of the event, although the employer can claim a tax deduction and the GST credits.
3. Who’s invited?
Some employers invite their employees’ families to the annual Christmas party.
The FBT exemption for Christmas parties held on the employer’s business premises applies only for employees, not their associates.
FBT will apply to expenses that relate to family members attending the Christmas party (either on the employer’s business premises or at an external venue), unless the minor and infrequent exemption is available. Typically there is only one such event per year and so provided the cost per head is less than $300, the FBT minor and infrequent exemption can apply.
Alternatively, if the cost per head is $300 or more, FBT will apply to those expenses that relate to family members.
4. Getting home safely
If the Christmas party is held on the employer’s business premises, the employee’s taxi or rideshare trip home from the office is exempt from FBT.
Alternatively if the Christmas party is held at an external venue, the employee’s travel costs are subject to FBT unless the FBT minor and infrequent exemption applies.
5. Keep good records
As is always the case with FBT, it is critical employers maintain accurate records to support the position taken in the FBT return, especially if claiming an exemption from FBT.
For the Christmas party this includes details of all the costs of the party, who attended and where it was held. For gifts this includes the cost of each gift, what it was, who received it and any other gifts provided to that person during the year.
22 November 2021