The Christmas celebration season will see many Australian businesses paying for their staff to celebrate at the annual end of year shin dig. The season will likely see its fair share of hangovers and possibly an embarrassing moment or two.
Here are a few tips for keeping the taxman happy this festive season:
- If you throw a Christmas function for your staff off-site, the cost of providing the party would normally be treated as a fringe benefit, with fringe benefits tax (FBT) payable by the employer. The key here is the cost per employee. If the cost is less than $300 per employee, no FBT will be due, because of the so-called minor benefits exemption. This exemption also applies if spouses or partners come along to the party. The minor benefits exemption applies to each benefit provided, so for example if you spend $280 per head on the party and then give a gift to each employee valued at $290, both expenses will be free of FBT.
- The costs of a Christmas party are exempt from FBT if provided on a working day on your business premises. This excludes non-employee guests and there could be an FBT liability unless the cost is covered by the minor benefits exemption (see above).
- If your business also covers the cost of taxi fares to and from the festivities, these cost will count as part of the $300 per head limit if the function is off-site, but will be exempted from FBT if the party is at your premises.
- However, if the cost of your Christmas party is exempt from FBT, it is also not tax deductible for income tax purposes, nor can the business claim GST credits for the costs incurred.
- None of this generally impacts on the employee’s tax position. They can eat, drink and be merry knowing that the tax consequences usually fall only on the employer!
Who would have thought humble Christmas celebrations could cause such a tax headache? If nothing else, before you sip your first celebratory champagne, it may pay to have a chat with us to ensure you know exactly where you stand tax-wise.