‘Tis the season to be jolly. Fa-la-la-la-la, la-la-la-la 🎶 Sorry, we couldn’t help it. Christmas is exactly 25 days away, can you believe it?! If you haven’t planned your staff Christmas party or gifts for the year, read on as you may find yourself subject to Fringe Benefits Tax if you don’t understand your taxation obligations.
Firstly, what is a Fringe Benefit?
A fringe benefit is a non-mandatory benefit in addition to an employee’s monetary wage or salary. Fringe benefits are an important part of business and can be a useful way to attract quality staff.
Common examples of a fringe benefit in Australia include:
- A company car or motorbike
- Use of a holiday home
- Gym memberships
- Accommodation
- Concert tickets
- Staff Christmas parties and other staff social functions
- Other lifestyle assets
Sounds great, but why do I have to be taxed on this?
The Fringe Benefits Tax was part of a tax reform package introduced by the Hawke government on 1 July 1986. It was introduced to address previous deficiencies in the income tax law, which meant that fringe benefits were in effect, a form of tax-free income.
During the 1970s and early ’80s, salary packages commonly included a range of tax-free benefits including company cars, travel and restaurant meals. These were all claimable by the company as legitimate business expenses and did not have to be declared on an individual’s tax return.
As extracted from the ATO, FBT is paid by employers on certain benefits they provide to their employees or their employees’ family or other associates. FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.
But Christmas is the season of giving, and the ATO ever so kindly offers an exemption for minor benefits.
The ATO describes a minor benefit as a benefit that has a value of less than $300. It is exempt from Fringe Benefits Tax provided that the minor benefit adheres to the following conditions:
- the benefit is provided infrequently and irregularly
- the taxable value of the minor benefit and other similar or identical benefits (if they were treated as fringe benefits) is low
- the likely total taxable value of the minor benefit and other associated benefits is low (associated benefits are those provided in conjunction with the minor benefit, for example, electricity and telephone benefits provided as part of an accommodation package)
- it is difficult to calculate the taxable value of the benefit and any associated benefits
- the benefit is provided as a result of a contingency (for example, unexpected overtime).
Let's cut to the chase. I’m planning my staff Christmas party, will I incur fringe benefits tax?
If the cost of each benefit (per employee) is less than $300, and provided the benefit is infrequent and irregular in nature, you will not incur Fringe Benefits Tax.
If you decide to host your Christmas party on a working day, on business premises and with current employees (not associates or clients), then the costs of food and drinks are exempt from FBT.
There are many ways to amp up the fun for Christmas parties hosted on work premises. We won’t go into too much detail here, but head on over to the folks at Team Building for 39 Office Christmas Party Ideas, Games & Activities for Work
Some of our favourites include:
1. Secret Hall Deckers
Secret Hall Deckers is a cross between a desk decorating contest and Secret Santa. For this activity, employees get paired up. Instead of exchanging presents, participants decorate their assigned colleagues’ desks.
To avoid ruining the surprise and make the game less chaotic, you can schedule time slots where the assigned employee must be away from the desk, and swear surrounding coworkers to secrecy. Upon seeing the decorations, participants must guess which teammate decorated the space.
2. Christmas Lolly Bar
Christmastime is peak sweets season. Setting up a candy or cookie bar at your annual office party ensures that your staff will have visions of sugarplums dancing through their heads.
Setting up a sweets table is simple and can be done on a budget. You can source fancy glass containers at the dollar store or bring in favorite pieces from home. Next, buy Christmas-colored candy in bulk, and order large quantities of cookies and cakes. Local bakeries may be willing to offer discounts on corporate bulk orders.
3. Merry Murder Mystery
First, choose a festive mystery, such as a New Year’s Eve party murder, who killed Santa Claus, or murder at an ugly sweater party. Next, encourage participants to dress accordingly, or bring props to the party. Finally, hand out roles to each player, then read through the script. Players will listen and hunt for clues and try to be the first to unravel the mystery.
Check out this guide to virtual murder mystery parties.
4. Christmas Around The World
This party theme highlights the ways different cultures celebrate the holiday and expands employees perspectives in the process.
To host an international-themed Christmas party, first research celebrations in different nations. Keep in mind that all homages should be culturally sensitive and authentic and not stereotypical or offensive.
Next, gather appropriate foods and drinks. Examples include German Stollen bread, tamales for Costa Rica, and KFC fried chicken for Japan. Decorations and entertainment should also honor the ways that different countries honor the holidays. Music can fit the theme too. For instance, play foreign language Christmas carols such as O Tannenbaum and Feliz Navidad, or translated versions of other popular carols.
GST and Parties Deductibility and GST
GST credits can only be claimed to the extent that a cost is tax deductible
Moving on to gifts. Can I gift Jimmy the new Ford Ranger for Christmas?
First of all, who are you, and are you in need of a new bookkeeper? Our books are always open to generous souls like you 😂
In short, you can gift whatever you want, but you will be subject to FBT as the monetary value of your gift is over $300.
A more realistic gift may be:
- Gift hampers
- Bottle of wine or spirits
- Gift vouchers
- Flowers
- Theatre or musical tickets
- Movie tickets
- Flights and accommodation for a holiday
- Membership to a club
Gifts for your clients and suppliers
Gifts may be classified as “entertainment” or “non-entertainment.”
For gifts such as wine, food, hampers, vouchers, etc, as these are not considered to be entertainment.
- Non-entertainment gifts to clients or suppliers are deductible and GST is claimable, no FBT implications.
Gifts such as a holiday, membership to a club, or tickets to a theatre, sporting or musical event are considered to be entertainment.
- For clients and suppliers, the entertainment gift is not tax deductible, no FBT applies, and no GST is claimable.
It’s important to note that the topic of tax deductibility, and fringe befits tax is not always straightforward. If you’re ever in doubt, speak to a tax professional. That’s all from us on the blog for 2022. Have a safe and happy holiday!
Join our newsletter.
Stay up to date with the latest news, advice and insights by subscribing to our newsletter.
