With Christmas just around the corner, businesses are in full swing with their festive celebrations, presenting gifts and hosting events for employees and clients. While these seasonal gestures are integral to spreading holiday cheer, it’s important for businesses to be mindful that such gestures and gifts may incur Fringe Benefits Tax (FBT) liabilities. In this blog, we’ll explore how FBT applies to common holiday activities and offer practical, easy-to-follow advice to ensure businesses stay compliant with tax laws while still fully enjoying the festive season
For those who might be unfamiliar with Fringe Benefits Tax, or FBT, it’s a tax applied to certain benefits that employers provide to their employees, which can include anything from holiday gifts to tickets for events. Understanding FBT is crucial, especially during the festive season when these types of benefits are more common. To get a clearer picture of what FBT entails, feel free to visit our quick guide to FBT blog for a quick and comprehensive guide on FBT.
The Festive Season and FBT
Gifts to Employees
Common during the holidays, gifts to employees can be a taxable fringe benefit if they exceed certain thresholds. Non-entertainment gifts under $300, such as hampers, are generally exempt, while entertainment gifts might attract FBT.
Non-entertainment gifts are typically items or services that don’t provide a specific form of entertainment or recreational enjoyment. These gifts are often tangible items and can include:
Tangible Items: Such as Christmas hampers, bottles of wine, books, personal gadgets, stationary sets, or similar items.
Gift Vouchers/Cards: These might be for specific stores or general use, allowing the recipient to purchase goods of their choice.
Flowers or Chocolates: Common appreciation gifts that are used to convey goodwill or thanks.
Non-entertainment gifts under $300 are usually exempt from FBT. This exemption is valuable for employers as it allows them to give practical or thoughtful gifts to employees without incurring additional tax liabilities.
Entertainment gifts, on the other hand, provide some form of entertainment or enjoyment and can include:
Tickets to Events: Such as tickets to the theater, concerts, movies, sporting events, or live performances.
Hospitality Packages: Invitations to attend special events, galas, VIP dinners, or corporate boxes at sports events.
Leisure Activities: Gifts that include experiences like a paid day at a spa, golf day passes, or adventure activities like skydiving or a scenic flight.
Even if the value of an entertainment gift is under $300, it may still attract FBT. The differentiation in FBT treatment between entertainment and non-entertainment gifts arises because entertainment gifts are seen as providing a higher level of personal enjoyment, which can be akin to a reward or extra remuneration.
The FBT implications of Christmas parties depend on the venue, cost per attendee, and attendees. Parties on business premises during work hours usually are FBT exempt. Off-site parties may fall under the ‘minor benefits’ exemption if the cost per head is below $300.
Location of the Party (On-site vs. Off-site)
On-site Parties During Work Hours: Parties held on the business premises during normal working hours typically enjoy an FBT exemption. This is because such events are considered part of the employees’ access to amenities or facilities at the workplace.
Off-site Parties: Hosting a Christmas party off-site introduces more complexities. The setting away from the business premises can categorise the event as an entertainment fringe benefit, potentially attracting FBT.
Cost Per Attendee
Under the Minor Benefits Exemption Threshold: The ‘minor benefits exemption’ applies if the cost per head for the party is below $300. This includes all associated costs like food, drinks, and entertainment. Keeping the cost below this threshold per attendee (including both employees and their associates) can exempt the event from FBT.
Above the Threshold: If the cost per head exceeds $300, the benefit is no longer considered minor, and the entire cost of the party may become subject to FBT.
Nature of Attendees (Employees vs. Clients and Associates)
Employees Only: If the attendees are solely employees, the FBT treatment is more straightforward, with clearer guidelines and exemptions.
Including Clients or Associates: When clients or family members of employees are also invited, the FBT implications can change. The costs associated with these non-employees may not be covered by the same exemptions and can attract FBT.
Type of Benefits Provided:
Additional Benefits: Apart from the party itself, other benefits provided during the event (like door prizes, accommodations, or travel reimbursements) can also impact the FBT assessment.
Providing Accommodation or Travel
The provision of accommodation or travel benefits during the festive season, such as Christmas, has specific implications for Fringe Benefits Tax (FBT) that businesses in Australia need to consider. Here’s how these benefits relate to FBT during the Christmas period:
Seasonal Rewards and Incentives: During the Christmas season, employers often reward employees with special incentives, which might include travel or accommodation. For example, a company might reward high-performing employees with a holiday package. Such incentives, being for personal enjoyment, typically subject to FBT.
Christmas Events and Off-site Parties: If a business hosts a Christmas party at a location that requires employees to travel or stay overnight, the costs associated with this travel and accommodation are likely to be considered fringe benefits. For instance, if a company organises a Christmas celebration at a resort or a distant venue, the provision of transportation and lodging for employees to attend this event could subject to FBT.
Holiday Travel Benefits: Some companies might offer travel as a Christmas bonus, such as flight vouchers or paid vacation trips. These are seen as providing personal enjoyment to the employees and are therefore typically subject to FBT.
Tips for Managing FBT During the festive seasons
Assess the potential FBT implications of your holiday expenses. This involves understanding what constitutes a fringe benefit and how it might be valued.
Consider the structure of your holiday benefits. For example, choose non-entertainment gifts under $300 to maximise FBT exemptions.
If organising a holiday party, plan the event in a way that optimises FBT outcomes, such as hosting it on business premises during work hours.
Keep Accurate Records
Document all holiday-related expenses in detail. This includes the cost of each gift, per head costs of parties, and expenses related to travel or accommodation benefits.
Keep receipts and invoices organised. This is crucial for substantiating any claims or exemptions and for accurate FBT calculations.
Record the nature of the event or gift, the date, and the beneficiaries (employees, clients, etc.), as this information is essential for FBT compliance.
As we celebrate the festive holiday season with employees and clients, a time that brings warmth and connection to the workplace, it’s crucial to stay mindful of the Fringe Benefits Tax (FBT) implications of such celebrations. At MKG Partners, our focus is on ensuring your FBT compliance is comprehensive and stress-free. We actively engage with clients in March and April to address FBT compliance, and we’re always ready to assist with any specific FBT-related queries or concerns you may have during the festive season. If you need guidance or support in navigating FBT, please don’t hesitate to contact your MKG Partners accountant. Our team is here to help you enjoy the holiday festivities while ensuring compliance with tax regulations.
For more details information on Fringe Benefits Tax (FBT), you may be interested in our previous blogs: A Quick Guide to Fringe Benefits Tax and Logbook Requirements for Fringe Benefits Tax. These articles provide further insights into FBT and the importance of maintaining a logbook for compliance. Feel free to explore them for a comprehensive understanding of FBT obligations.