What better way to reward hardworking staff than with a Christmas party? But before you book a venue or hire caterers, you should be aware of the tax implications for your business.
You could end up paying fringe benefits tax (FBT) for providing a Christmas party because it’s classed as a benefit. Benefits are things that you provide to employees on top of their salary or wages, such as a work car or private health insurance. Unfortunately, Christmas parties can also fall into this category and can incur FBT.
FBT is paid separately to income tax and is calculated on the taxable value of the benefits provided. If you don’t plan carefully, your Christmas party could end up costing you a whole lot more than you bargained for come tax time.
But on the positive side, there are ways around paying FBT if you know which benefits are exempt and which are not, according to the ATO.
Fringe benefit tax exemptions
If you want to throw a Christmas party and avoid dipping into your hard earned business cashflow, here are three ways to avoid paying FBT.
- Choose a ‘non-entertainment’ venue
To be classified as exempt for FBT, the benefit you’re giving to your employees has to be considered ‘non-entertainment’. For example, a work Christmas party is more likely to be classified as ‘non-entertainment’ by the ATO if it’s held at your office during a weekday. A private function room at a nightclub on a Friday night is more difficult to class as ‘non-entertainment’, especially if you pay for everyone’s taxi rides home.
- Keep the cost per head $300 or less
However, even if you do end up booking a separate venue from your office, this can still be exempt from FBT. If you keep the total amount spent to below $300 per head it’s classified as a ‘minor benefit’. These types of benefits can be exempt from FBT because they’re low cost and irregular events. So, unless you throw a big party every week, a one-off staff Christmas party at the end of the year should be fine.
- Give ‘non-entertainment’ gifts
It may go against the spirit of Christmas, but giving ‘non-entertainment’ gifts for employees will keep you on the right side of the taxman. Gifts like a movie pass, tickets to concerts or restaurant vouchers are considered ‘entertainment’ and eligible for FBT.
Instead, employee gifts such as hampers or bottles of wine are generally exempt from FBT.
This is a simplified version of how to avoid paying FBT but there are other exemptions that can save you money. If you’re worried about being stung by FBT at tax time and want to know how to avoid it, then it’s best to talk to a tax professional.
Get in touch with MSI Taylor. Our Toowong accountants are experts at giving financial advice, from the tax implications of work Christmas parties to improving business cash flow. If you value your business talk to us today.