FBT and Christmas parties
With Christmas approaching, employers should be aware of the tax consequences of hosting Christmas parties for their staff.
Employers must pay fringe benefits tax (FBT) - at a rate of 47% on the grossed-up taxable value when certain non-cash benefits (called fringe benefits) are supplied to their employees or their associates (i.e. past, future and current employees and their spouses and children) instead of paying salary or wages.
However, certain non-cash benefits will not be subject to FBT. While the FBT law does not specifically deal with Christmas parties, the following types of FBT exempt benefits are particularly relevant when determining an employer’s FBT liability when hosting a Christmas party:
- Exempt minor and infrequent benefit valued at less than $300 (e.g. a catch-all exemption available for current employees and their associates for low value benefits provided on an “infrequent” or “irregular” basis);
- Exempt property benefit (e.g. all Christmas party food and drink provided by the employer that is consumed by a current employee at a party, provided the party is held at the employer’s premises on a business day); and
- Exempt transport benefits (e.g. a current employee’s employer pays for a taxi ride home if the Christmas party is held at the employer’s premises).
Please note that the $300 minor and infrequent benefit exemption applies separately on a per benefit basis (i.e. minor benefit exemption can apply if one present of $250 is provided to an employee and another present of $290 is provided to the employee’s spouse).
As you can see from the above, the amount of FBT payable can be influenced by:
- When the party will be held (i.e. for the minor and infrequent benefit exemption, the cost of the benefit provided must be less than $300 per head and not provided regularly or frequently);
- Where the party will be held (i.e. for the property fringe benefit exemption to apply, the food and drink must be provided and consumed by current employees on the employer’s premises on a business day);
- For whom the party will be held (i.e. the tax consequences are different depending on whether the benefits are provided to employees, their associates or clients).
This brief overview gives a broad outline of the application of the FBT law to Christmas time activities. A variety of benefits may be supplied to employees at Christmas time with each containing their own valuation, deduction and exemption rules.
Please contact your Nexia Adviser if you would like to discuss any of the tax effective benefits that may be supplied to employees at Christmas time or in certain situations, at any time.