Christmas Benefits: Don't let the Taxman ruin your Christmas


With the end of the calendar year fast approaching organisations have started to plan their Christmas festivities for employees and clients.  Unfortunately, tax laws associated with the provision of Christmas benefits to employees are very complex and the Taxman does not mind crashing the party.

 

It is important that employers consider what benefits they provide their employees so that they can avoid the administrative nightmare of Fringe Benefits Tax (FBT).  This article examines the most common situations faced by employers at Christmas time and will explain how employers can provide these benefits in the most tax effective manner.

 



Christmas Parties

Christmas parties provided to employees are considered fringe benefits under Division 9 and 11 of the FBT Act and are therefore caught by FBT unless they are specifically exempt.  An exemption is available to employers under s 58P for minor benefits.  A benefit qualifies for the minor benefit exemption when the value of the benefit is less than $300 (inclusive of GST) and is provided to the employee or their associate on an infrequent and irregular basis. 


The Commissioner has also confirmed that the value of the Christmas party and any Christmas gift provided to an employee are not combined for the purpose of determining whether a benefit is a minor benefit (Taxation Ruling TR2007/D6).  For example, a Christmas party is held at a restaurant costing $180 per head.  At the Christmas party each employee is also provided with a Myer gift card valued at $200.  Although the combined cost is more than $300, the provision of both benefits will still qualify for the minor benefit exemption as they are individually less than $300.  However, if associates attended the party the exemption would not apply as the value per employee would exceed the minor benefits threshold.


A Christmas party provided only to employees on the business premises on a working day is considered an exempt property fringe benefit.  This type of Christmas party is specifically exempt irrespective of the cost of the Christmas party.


These benefits do not attract FBT but are included under the meaning of “entertainment” which prohibits the employer from claiming an income tax deduction (s32-5 of ITAA97) or GST credits (s69-5(3) of GST Act).



Christmas Gifts

The FBT and income tax implications of gifts provided to employees depends on whether it is considered “entertainment” under the meaning of s32-10 of the ITAA97.  Where a Christmas gift that is not considered entertainment (i.e. gift vouchers, flowers, perfumes) is provided to an employee and the value of the gift does not exceed $300 (inclusive of GST) it will be specifically exempt from FBT under the minor benefits exemption.  Furthermore, an income tax deduction and GST credit can be claimed.

 


Final tips for employers:

  • If providing a Christmas party to employees off business premises and outside of business hours keep the value of the party below $300 per employee.  This will ensure that it does not attract FBT.  However, under this arrangement no income tax deduction or GST credit can be claimed.

 

  • Providing a Christmas party to only employees on the business premises during business hours, where only finger food or a light meal is provided does not attract FBT.  Furthermore, the entire cost is tax deductible and GST credits can be claimed.

 

  • If providing a Christmas gift to an employee ensure that it is not considered entertainment under the meaning of s32-10 of the ITAA97 and that the value including GST is less than $300.  A Christmas gift provided to an employee under this arrangement will not attract FBT and will entitle the employer to an income tax deduction and GST credit. 
Last Updated: 30-Dec-2011 07:33 PM