The holiday season is fast approaching, and while you’re gearing up for Christmas parties, Secret Santa, and festive cheer, there’s one gift you don’t want – an unexpected tax bill!
Before you book that lavish office party or hand out employee gifts, let’s talk about the tax implications that come with all the fun.
Here’s the lowdown on how you can avoid getting caught out by Fringe Benefits Tax (FBT) and other tricky rules this holiday season.
Christmas party on the premises
Planning to hold your Christmas party at work during a regular working day? Good news! The cost of food and drinks should be exempt from FBT in this case, as long as you meet the conditions for the in-house benefit exemption and are not using the 50/50 or 12-week logbook method of valuing meal entertainment.
But remember, the cost won’t be income tax deductible unless it’s subject to FBT, so you might be missing out on that deduction if the exemption applies.
Gifts under the tree
Christmas gifts for employees can be FBT-free too, but only if they meet the minor benefits exemption.
To qualify, the gift must cost less than $300 per employee and be considered minor, infrequent, and irregular. So, no luxury watches or weekly hampers, but thoughtful, modest gifts are in the clear.
If the gift ticks these boxes, not only do you avoid FBT, but you may also claim an income tax deduction and GST credits on the cost.
Entertaining clients
If you’re splurging on client entertainment during the festive season, remember: no FBT, means no income tax deduction, and no GST credit. Entertaining clients might win you business, but the tax benefits are off the table.
However, as with all things tax, this can depend on many factors. For you and your employees different rules apply, so watch out for those scenarios.
Offsite or after-hours events
Taking the Christmas party offsite or hosting it after work? You could still face FBT if the costs don’t qualify for an exemption. But you do have options:
- The 50/50 split method lets you split the total cost of meal entertainment, applying FBT to only 50% of the cost, with 50% of the cost also tax-deductible.
- Alternatively, the 12-week register method or actual method could help determine the taxable value of meal entertainment for FBT purposes. This method then determines whether (and therefore how much) of the expense is tax-deductible and eligible for GST credits.
Wrapping it all together
If you’re footing the bill for employee Christmas fun and it’s subject to FBT, you can usually claim a tax deduction on the cost and snag some GST credits.
While there are a few exceptions, if the cost qualifies for an FBT exemption, you won’t be able to deduct it or claim GST credits.
In short, if you’re throwing parties and handing out gifts, it’s worth taking a moment to check whether FBT applies and if you’re missing out on valuable deductions.
If you’re unsure where you stand, don’t let the holiday season turn into a tax headache. We’re here to help you navigate the festive season’s tax maze!
Contact us to make sure your Christmas cheer doesn’t come with an unexpected FBT twist.
