Beware fringe benefits tax with Christmas parties: HLB Mann Judd

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If there’s one thing guaranteed to get business owners and managers thinking twice about Christmas celebrations, it’s the thought of the Tax Man showing up.

But this is less to do with businesses being Scrooges and more to do with the fact that the fringe benefits tax (FBT) considerations can be very complicated, says Jol Dare, tax partner at HLB Mann Judd Sydney.

“Understandably, some businesses may decide that organising a Christmas party is too hard, especially in the lead up to the end of the year when there are so many other things going on.

“Having to worry about the tax implications of a seasonal get-together for staff and associates can be a serious party-pooper,” he says.

To help manage the tax considerations at Christmas time, Mr Dare says there are three key questions that businesses should ask – how much will be spent per person, where will any event be held, and what kinds of gifts (if any) will be given?

“Depending on the answers to these questions, businesses can then determine which method they will use to report FBT, which will help them work out how much tax will be payable,” Mr Dare says.

FBT reporting

There are two main methods for reporting FBT – the “50-50” split method and the “actual” method

Mr Dare says the 50-50 method basically means that FBT is payable on 50 percent of the total expense of providing entertainment to all guests, whether staff, clients or family.

The actual method, on the other hand, means FBT is paid on all expenses for staff, but if any clients attend the event then there is no FBT payable on their expenses.  However full records must be kept to support the “actual” method.

“If the business plans to spend under $300 per person on entertainment, they should probably use the ‘actual’ method of reporting FBT as this will help minimise FBT.  This is particularly true if the event includes both staff and clients, as there is no FBT payable on client costs.

“If they are spending more than this, or if it is mainly staff attending, then the ’50-50’ method may be a better option – and the silver lining is that, while it may mean more FBT is paid, it usually requires less record-keeping,” Mr Dare says.

Keep in mind that the method chosen applies for the entire FBT year, not per event.

Party location

“If the party is held on the business’s premises, on a normal working day, with just employees attending, there will be no FBT liability as long as the ‘actual’ method of reporting is used, and there is no limit on how much can be spend on each employee (including taxi fares home),” Mr Dare says.

“If other people attend the party – such as spouses – the total cost per person must be less than $300 (including GST) to remain FBT exempt.

“If the ’50-50’ method is used, then 50 percent of all expenses will be subject to FBT regardless of how much, or little, is spent per guest. 

“However, if the party is held off the business premises, it will still be exempt from FBT if the cost per head is less than $300, as long as the ‘actual’ method is used.”

Christmas presents

There are two types of gifts, according to FBT rules – entertainment and non-entertainment.

“Non-entertainment gifts, including gift vouchers, hampers, perfume or mugs, and that are less than $300, will be exempt from FBT,” Mr Dare says.

“Entertainment gifts, such as tickets to the movies or a sporting event, may also be FBT exempt only where the actual method is used and if they are less than $300.”

HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.