FBT for the festive season

As the festive season is fast approaching, many businesses will be in the process of organising events for their employees without considering the possible fringe benefits tax (FBT) obligations.

Many businesses organise extravagant Christmas parties for their staff as a way to thank them for their hard work and dedication throughout the year. Claiming Christmas party expenses is not always straightforward, as there are implications for GST, income tax and fringe benefits tax. There are different rules for employees, your spouses, and your clients or suppliers. The cost of the party may attract fringe benefits tax if it costs more than $300 per employee.

 FBT is a tax paid by employers on certain benefits provided to their employees (or employees’ families) and it is separate from your yearly income tax. It is calculated on the taxable value of the fringe benefit. As an employer, you must self-assess your FBT liability for the FBT year, which is from 1 April to 31 March. If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe.

FBT can apply to benefits provided such as cars, parking allowances, gym memberships, entertainment and more. A common entertainment scenario for businesses is the annual Christmas party outside of the work premises during work hours.

For example, you have a party for 20 staff, 10 customers and suppliers and 10 spouses of employees and spend $10,000. That equates to $250 per head, which is under the minor benefits FBT threshold, therefore the party is not subject to FBT. There will also be other tax considerations to factor in depending on the FBT treatment, such as GST not being claimable and the expense not being deductible for income tax purposes, in this scenario.

A simple guideline would be making sure the expense per head is less than $300, being under the minor benefit exemption. However, the ATO advises businesses to familiarise themselves with the FBT rules before deciding on a lavish Christmas party or just a simple catering lunch at the office. It is important to get on top of how FBT works to avoid an unexpected liability.

We encourage clients to obtain advice specific to their circumstances in this area if unsure of the obligations, and you can always contact our office if you have any queries before you start planning that EOY party!