What are the FBT implications of Employee Christmas Parties and Gifts?
The Christmas break-up party and/or gifts to employees can be exempt from Fringe Benefits if a few rules are followed.
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The cost can be exempt as either an exempt property benefit or an exempt minor benefit.
Exempt Property Benefits
- Costs like food and drinks provided for employees as part of a Christmas party, on a working day on business premises and consumed by current employees of that business.
Exempt Minor Benefits
This is applicable when the property benefits exemption doesn’t apply (i.e. because the party is held at a restaurant or separate venue).
- The cost per employee must be less than $300 (GST inclusive)
- Associates of employees such as spouses and children are regarded as employees (hence the limit for an employee and partner would be $300 each)
- Going over the $300 limit can be expensive. The difference between spending $290 per head and $310 per head isn't just $20. The employer is looking at quite a substantial tax bill if that's the case.
- The $300 limit was set in 2007 and was seen as quite generous. Now, though, due to years of inflation, $300 is quite easily reached, so an employee needs to be careful.
- It seems the only surefire way to avoid FBT was to spend less than $300 per head or hold the event on a working day and on the business premises.
- FBT is not payable on the party costs for invited clients, but the $300 threshold applied to “associates of employees (such as their partners)” and to gifts.
- Another factor to be considered is the potential for income tax deductions for the cost of the party, which were claimable only if FBT applied.
- The ATO advised celebrating businesses – regardless of guests, venue or cost per head – to keep records of all spending for the post-Christmas tax hangover.
The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
Gifts are also considered separately from the Christmas party, so provided the cost of a gift and the party are each less than $300, then both would be exempt from FBT.