It’s starting to feel a lot like Christmas! Have you started planning your staff Christmas party? Whilst feel free to pop a champagne bottle (or three), we recommend planning your party with the available Fringe Benefit Tax (FBT) exemptions in mind to save yourself a tax hangover.
If you get it wrong, a Christmas party costing $5,000 could potentially give rise to a FBT bill of $4,800. However, if you stay within the tax exemption rules, letting your staff enjoy some Christmas cheer will not leave you with a nasty tax bill.
Stick to $300 per head
Christmas entertainment costs up to the value of $300 per employee is generally exempt from FBT. So, throwing a staff Christmas party where the cost per head is less than $300 should escape Fringe Benefit Tax.
The safest option is to hold the Christmas party on the business premises or worksite on a work day, as providing the food and drink will be FBT free, if it’s only employees who attend.
If spouses or partners are invited (the law refers to them as “associates”) the cost of your party is still FBT free if the cost per head is less than $300. The cost of entertaining clients is not subject to FBT.
Christmas Gifts for staff
There is also a “Santa inspired” tweak to how the rules of FBT are applied to gifts for staff. If, as a generous employer, you also give staff a gift, the party and the gift are considered separately for FBT purposes. If each is less than $300 they are both generally FBT free.
FBT exemption means no tax deduction
It’s important to remember if the Christmas party is exempt from FBT you cannot claim it as an income tax deduction, nor can you claim any GST credits arising from these “supplies”.
If you require advice about throwing a staff Christmas party without incurring FBT, give us a call on (03) 9746 6479 or continue the conversation via Facebook.