Key points:
FBT Overview: FBT is a tax on non-cash benefits provided to employees, with a current rate of 47%.
Exemptions available under the Actual method: Minor benefits under $300, on-premises food and drink, and employer-provided taxi rides home can be exempt from FBT.
50/50 Method: This method totals meal entertainment costs and subjects 50% to FBT, with no exemptions.
Record Keeping: Employers must maintain detailed records of attendees to apply the actual method for meal entertainment.
Gifts and Entertainment: Gifts under $300 may be exempt, but entertainment-related benefits like gift cards to a restaurant may be subject to FBT.
As the festive season is almost upon us, it is timely to consider the Fringe Benefits Tax (FBT) consequences on entertainment so that there are no financial hangovers when coming to complete your FBT return in April next year. It is important for employers hosting Christmas parties that they can correctly identify all function related costs, to assess the correct tax outcome.
What is FBT and why do I need to consider it?
FBT is a tax applied to employers for providing non-cash benefits to an employee (or their associate, such as a partner). Currently the tax rate for FBT is 47% of the cost of the entertainment, however there are exceptions, 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 may not be subject to FBT. The following are exempt from FBT for taxpaying organisations when the Actual method is chosen to value Meal entertainment:
- Minor and infrequent benefits valued at less than $300 (GST inclusive). Should the benefit be provided on an infrequent or irregular basis throughout the year and 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.
- Exempt transport benefits where the employer provides a taxi ride home if the celebration is held at the employer’s premises.
For tax-exempt body entertainment fringe benefits, the minor benefit exemption is only available in 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?
Under this method of valuing Meal entertainment, the costs of the Christmas party (and every other meal entertainment instance during the FBT year) are totalled and 50% of these costs will be subject to FBT. Generally, there are no exemptions available. This includes the 3 exemptions noted above, no access to the minor benefit exemption for meal entertainment, no access to the on-premises exemption and no access to the taxi travel exemption.
What records am I required to maintain as an employer to access the ‘actual’ method for meal entertainment?
Employers will require documentation to determine the number of recipients and who the recipients are that attended the Christmas party. 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. This documentation is required for each entertainment function and event that has been held during the FBT year, which identifies each person who received the meal entertainment.
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, rather than meal entertainment. For these types of costs, the minor benefit exemption may apply.
Can I provide a gift to employees at the Christmas party?
Yes, the provision of a gift to employees at the Christmas party may be considered a minor benefit where the value of the gift is less than $300 (GST inclusive). This can also apply to the employees’ associate, as a separate limit.
A gift provided to an employee of a tax-exempt body will also be exempt from FBT where 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 voucher to a restaurant will be considered an entertainment related fringe benefit. The expense will only be tax deductible when the amount is being subject to FBT, and no input tax credits can generally 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, generally 50% of the meal entertainment costs will be entitled to an income tax deduction and 50% of the GST credits will be entitled to be claimed.
Need help understanding your unique FBT?
At Nexia Australia, 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. Submit an enquiry form to connect with an Advisor.
