Odds are you’re planning some type of end of year Christmas party for your office and staff – and who wouldn’t? It’s the time to wrap up and celebrate the year gone by and look forward to the next! But did you know that Fringe Benefits Tax (FBT) might haunt your event? I bet that shocked you!
So before you lose that jolly-holly feeling, let’s get clear on FBT.
What is FBT?
In a nutshell, it’s a tax you pay on certain benefits you supply to your employee, or family members or associates of your employee, in place of – or in addition to – their ‘normal’ salary. Yes, don’t worry, I will clarify a bit further.
I’ll start off this explanation with one of the most common ways FBT will get roped into your business: Salary Sacrifice. If you haven’t heard of Salary Sacrificing before, it’s essentially an agreement whereby your employee accepts non-cash benefits in lieu of an agreed portion of future wages.
What can be sacrificed?
Quite a lot! Just as long as the non-cash benefit forms part of your employee’s remuneration – replacing what would have been paid as part of their actual salary – it can be sacrificed. Common items which get salary sacrificed are: loan repayments, home phone bills, superannuation, fees for schooling, leases on cars, health or child care costs, expense reimbursement, and so on.
Enter: Fringe Benefits Tax
If you’ve gone down the FBT path with your business, that means you’ve registered, lodged returns, and are paying FBT when appropriate. Not to mention ensuring it’s included on your employee’s payment summaries, too.
Of course, as with nearly every regulation, there are exemptions! You might not have to pay FBT if the items you supply to your employees are used primarily in their workplace. For example: computer, briefcases, protective clothing and accessories such as eye goggles, and more. Furthermore, superannuation is excluded from FBT; which is no surprise so many employees and employers happily take up this form of fringe benefit.
So, what about the Christmas party?
Since we’re nearing the end of year, I often get calls about whether the FBT is applicable to expenses related to Christmas parties. To be clear, there isn’t any special type of FBT for this time of year and if you hold a festive ‘hoorah’ on your premises, on a typical work day, for your existing employees – items like food and drink are typically exempt from FBT.
Generally speaking though, a Christmas party is considered an entertainment expense and not a fringe benefit. Not to mention, the party isn’t actually tax deductible! Lots of surprises in today’s newsletter, eh?
But you’d better watch out, because good ol’ FBT just might come to town for your Christmas gathering! But how, after I just said it might be exempt?
If you, an associate, or an engaged third party, provide a fringe benefit to current, past, and future staff – as well as any of their family – those costs just might attract FBT if certain criteria is met. Yes, including the Christmas party.
How should the celebrations proceed?
Firstly, you need to work out if the cost for your Christmas gathering will be more than $300 (including GST) per person. If the expense is less than that, then odds are, you won’t have to pay FBT.
That little loop hole is thanks to something called a minor benefit. A minor benefit is when you give a benefit on an infrequent basis, and it is not a reward for services rendered, and costs less than $300 including GST.
Sorry, not unless the FBT makes a quick about-face! But don’t stress though, you won’t be the party pooper I promise! If you want to pass on the festive cheer this Christmas, I highly recommend you give your employees non-entertainment type gifts which fall into the minor benefit category – meaning they cost less than $300 including GST.
What this means is, your gift may not attract any FBT. Seriously, that’s the best win-win scenario for the end of year!
It’s time to speak to an expert
If you want to make sense out of the rabbit warren of explanations the ATO provide on FBT, you can click here. But trust me, a single phone call or visit to my office will make everything crystal clear for you much easier than manoeuvring all the ATO’s tax talk.
There’s no reason to be confused about FBT – or to be unsure about giving Christmas gifts to staff – pick up the phone and ring 1300 135 918…and have a Happy Holiday!