Chartered accountant GAIL FREEMAN helps her client make sense of the complex fringe benefits tax issues around a simple Christmas party.

Chen came to see me confused about fringe benefits tax (FBT) liabilities for his staff Christmas party. 

“There’s no special legislation concerning Christmas parties,” I told him.

“The general principles concerning entertainment apply to both FBT and income tax. 

“The most important thing to understand about FBT is that it only applies to employees – past, present or future – and does not apply to your clients. So, if FBT is payable on your Christmas party then it should be tax deductible to the extent that it is subject to FBT. 

“The calculations are complex and you need to separate the costs that apply to your clients and the costs that apply to your staff.

“You also need to be aware that any benefit under $300 a head is regarded as a minor benefit and is not subject to FBT. 

“If the Christmas party is held on your business premises, the situation is slightly different. If you invite only your staff and their associates then there is no FBT to be paid for your staff regardless of the cost. 

“However, if the cost for each associate exceeds $300 then the whole payment for that person is subject to fringe benefits tax. It should also be tax deductible. If you also invite some clients, then the cost per client is not subject to fringe benefits tax, nor is it tax deductible.

Chen said this year they planned to celebrate at a restaurant.”

“If you go to a restaurant or other venue away from your business premises, the situation will be different,” I told him. 

“If the cost exceeds $300 for each person, the full cost will be subject to FBT as it will also be for their associates. It will also be tax deductible.

“There is a second method of calculating FBT called the 50/50 method but, as you are not using this, I don’t propose to discuss it further.

“I know that some of your staff are employed in other states and I assume that some or all of these staff will come to Canberra for the party. The $300 minor benefit cost also includes their travel and accommodation if it is solely to attend the party. If they come for work purposes their travel should not be included. However, if they bring a partner or other associate, those travel and accommodation costs will be included in the $300 threshold.”

“Lastly, the good news is that the cost of any Christmas present is regarded as a separate benefit so is also subject to a $300 minor benefit exemption. This means that you can provide each staff member with a meal costing less than $300 and a gift costing less than $300 and also provide the same for their associates. These amounts are not tax deductible nor can GST be claimed, if any, but they are also not subject to FBT.”

Chen said he hadn’t realised how complex this was. He’d intended to raise some general questions about client entertainment but felt he’d better digest what was covered so far. 

If you need guidance on FBT or any other tax related matter, please contact the experts at Gail Freeman & Co Pty Ltd on 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.