It’s fair to say you and your employees have had a long, hard year so it makes complete sense you want to thank them for all that they have done and will continue to do in the new year.
Isn’t this what Christmas parties are all about?
Claiming some of the costs as a tax deduction would absolutely make the festivities extra cheerful and jolly as a business owner. Yet, can your well-deserved office Christmas party be claimed as a tax deduction? Also, will Fringe Benefits Tax (FBT) apply?
Read more from the small business accountants at Crest Accountants, to find out.
Taking advantage of the $300 minor benefits exemption rule
Normally, meal entertainment provided to employees and associates attracts Fringe Benefits Tax (FBT). However, by using the “Actual Method” when accounting for meal entertainment, the employer has access to a valuable FBT exemption – the $300 minor benefit exemption.
The minor benefit exemption can apply to a benefit provided to an employee or associate if all of the following apply:
- The taxable value of the benefit is less than $300
- The type of benefit is provided infrequently and irregularly
- It’s difficult to value the benefit & associated benefits
For example, if you hold an annual staff Christmas party at a restaurant, where each benefit costs below $300 per head (like food & recreation), the benefits may be exempt from FBT completely.
Although in the above example no FBT is payable, you won’t be entitled to claim a tax deduction or GST credits for the event.
Be wary of Fringe Benefits Tax
Year after year, Christmas parties are infamous for incurring FBT.
Let’s look at a different example. Your business has had a successful year, and you want to bring together your clients and employees for a memorable night of celebration. You hire a restaurant and entertainment, and the cost of each benefit provided is greater than $300 per head. In this example the minor benefit exemption cannot apply to employees or associates. In light of this, here are two common ways to value meal entertainment:
Option 1 – 50/50 method
- The employer tallies up the value of the benefits provided to the employees, associates and clients, and splits them down the middle. 50% of the costs will be subject to FBT. GST credits are claimable, and the expense is tax deductible.
- For the remaining 50%, no FBT is payable. No GST credits are claimable, nor is the expense tax deductible.
Option 2 – Actual Method
- The employer tallies up the benefits provided to the clients. These do not incur FBT. No GST credits are claimable, nor is the expense tax deductible.
- The employer tallies up the benefits provided to employees and associates. These benefits are subject to FBT. GST credits are claimable, and the expense is tax deductible.
What if a Christmas Party is held on business premises?
The good news – if a party is held on business premises, on a workday, it could qualify as an exempt property benefit for employees. The cost of associates attending the party do not qualify as an exempt property benefit (however they may be caught under the minor benefit rule).
Stay tuned for our next article which will give you some tax-effective Christmas gift ideas for your employees and clients.
Happy holidays are soon approaching
Be quick! There’s still time to seek advice from your trusted Gold Coast small business accountants.
We’ll go through your Christmas party planning and expenditure to ensure you don’t miss out on any possible exemptions; plus help you understand when you are required to lodge an FBT return.
Want to know more about fringe benefits tax as a small business owner?
Contact Crest Accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice.