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.
As we enter the party season there is likely to be a hangover or two, if your business is forking out for Christmas festivities, is a tax hangover also on the menu?
We’ve done the hard work for you and here are some things to consider in order to avoid an unwelcome festive season tax bill:
1. If you host an off-site Christmas party for your employees, the cost of providing the party would normally be treated as a fringe benefits tax (FBT) payable by the employer.
2. However, under the minor benefits exemption, if the cost per employee is less than $300, no FBT will be due. This exemption also applies if spouses or partners join the party.
3. The minor benefits exemption applies to each benefit provided. Meaning if you 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.
4. If you spend more than $300 on the function, the whole lot will be subject to FBT, not just the excess.
5. The costs of a Christmas party, such as food and drink, are exempt from FBT if they are consumed by current employees on a workday and on your business premises. But remember that if spouses or other guests of employees attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption.
6. If the party is off-site and your business also covers the cost of taxi fares to and from the party, these costs will count as part of the $300 per head limit.
7. Although the cost of your Christmas party is exempt from FBT, it isn’t tax deductible for income tax purposes. The business also cannot claim GST credits for the costs incurred.
8. The on the plus side even though gifts are also covered by the FBT exemption, they generally ARE tax deductible and a GST credit can be claimed.
9. If you host a party for clients and contacts, there is no FBT; however the costs are not income tax deductible.
Hopefully now your Christmas celebrations won’t cause a tax headache!
Before you rush out to drink your first celebratory champagne, it would pay to have a chat to us here at Lockwood & Ward to ensure you know where you stand tax-wise. So give us a quick call today on 02 9299 7044.