Key points:
- FBT Overview: Fringe Benefits Tax (FBT) applies to non-cash benefits provided to employees, currently at a rate of 47%.
- Exemptions (Actual method): Minor benefits under $300 GST inclusive, on-premises food and drink, and employer-provided taxi rides home may be exempt from FBT.
- 50/50 Method: This method totals all meal entertainment costs for the year and applies FBT to 50% of the total, with no exemptions.
- Record Keeping: Accurate records of attendees are essential if you wish to use the actual method for meal entertainment.
- Gifts and Entertainment: Gifts under $300 may be exempt, but entertainment-related benefits (such as restaurant gift cards) may still attract FBT.
Why consider FBT during the Festive season?
With the end of the year celebrations approaching, it is important for employers to understand the FBT implications of staff parties and gifts, so that there are no financial hangovers when coming to complete your FBT return in April next year. It is important for employers to identify all Christmas function related costs, to assess the correct tax treatment.
What is FBT and why do I need to consider it?
FBT is a tax paid by employers on certain non-cash benefits provided to employees or their associates (such as a partner). The current FBT rate is 47% of the cost of the entertainment. However, several exemptions can apply, so Christmas isn’t ruined just yet!
How can I avoid the FBT cost and still treat my staff for Christmas?
Certain non-cash benefits are exempt from FBT for taxpaying organisations, if you use the Actual method for valuing Meal entertainment:
- Minor and infrequent benefits valued at less than $300 (GST inclusive) per person, provided infrequent or irregular throughout the year, may be exempt. This means applying the actual method for all meal entertainment expenses incurred during the FBT year.
- Exempt property benefit where the food and drink are provided by the employer and consumed on the employer’s business premises on a business day, are generally exempt.
- Exempt transport benefits where the employer provides a taxi ride home if the celebration is held at the employer’s premises may also be exempt.
For tax-exempt bodies, the minor benefit exemption is limited to the following circumstances:
- Where the provision of entertainment is incidental to the provision of entertainment to outsiders, and does not consist of a meal other than light refreshments; or
- A function is held on your business premises solely as a means for recognising the special achievements of your employee in a matter relating to the employment of your employee.
How does the 50/50 method apply when calculating Meal entertainment?
If you use the 50/50 method, you add the costs of the Christmas party (and every other meal entertainment instance during the FBT year) and apply FBT to 50% of these costs. Generally, there are no exemptions available (including the minor benefit, on-premises, or taxi travel exemptions) are available under this method.
What records am I required to maintain as an employer to access the ‘actual’ method for meal entertainment?
To use the actual method and claim exemptions, employers must keep detailed records of who attended each entertainment function and event held during the FBT year. Employers should maintain an attendance register or equivalent document to identify the attendees at the function. Employers cannot apply the minor benefit exemption if the recipient of the meal entertainment is not identified.
How is a band or DJ at the Christmas party treated?
If an entertainer such as a band or DJ is hired for the Christmas party then these costs are considered recreational expenditure, not meal entertainment. The minor benefit may apply if the cost per person is under $300 GST inclusive.
Can I provide a gift to employees at the Christmas party?
Yes, the provision of a gift to employees (and their associates) at the Christmas party may be exempt from FBT as minor benefits where the value of the gift per person is less than $300 (GST inclusive).
This also applies to employees of tax-exempt bodies if the minor benefit exemption conditions are met.
Can I provide a gift card or voucher to a restaurant to an employee?
Yes, the provision of a gift card or vouchers for restaurants are considered entertainment related fringe benefits. These are only tax-deductible if subject to FBT, and generally no GST credits can be claimed.
Can I get a tax deduction for the Christmas party?
The cost of the Christmas party is income tax deductible, only to the extent that the costs are subject to FBT.
Navigating the complexities of FBT during the festive season can be challenging, but with the right guidance, you can ensure compliance and make the most of available exemptions. Under the actual method, if the minor benefit has been applied and therefore the benefits have been exempted from FBT, you cannot claim the costs as an income tax deduction. Similarly, FBT is not payable on the costs of entertaining clients and suppliers, and therefore these expenses are generally not deductible for income tax and the GST credits are generally not allowed. The tax deduction and GST input tax credits can only be claimed on the portion of the expenditure that has been subject to FBT.
Under the 50/50 method, 50% of the meal entertainment costs are generally tax deductible and 50% of the GST credits will be entitled to be claimed.
Need help understanding your unique FBT?
At Nexia, we empower you to navigate your FBT obligations with confidence. Our expert team provides personalised assistance to identify exempt benefits, apply the correct valuation methods, and maintain accurate records. By partnering with us, you can minimise your tax liability and maximise your benefits, ensuring a smooth and stress-free festive season.
Don’t let FBT complexities dampen your festive spirit. Reach out to us today and let our experienced advisors guide you through the process. Connect with our team of experts today.
