• Christmas 2013: The tax cost

With the festive season almost upon us it is worth considering the Fringe Benefits Tax (FBT), income tax and GST consequences of expenditure at this time of the year on Christmas parties and gifts.

Food & Drink Costs at Christmas Parties and Christmas Gifts

With the festive season almost upon us it is worth considering the Fringe Benefits Tax (FBT), income tax and GST consequences of expenditure at this time of the year on Christmas parties and gifts. With careful planning you can provide employees with end of year benefits in the most tax effective way.  This area of the law is extremely complicated and we cannot deal with every possibility in this short newsletter so if you are unsure or wish to confirm any issues, please contact us to discuss further.

Christmas Parties and FBT

Employers who elect ‘50/50’ method for Meal Entertainment Irrespective of who attends the party (employees, clients or both) or whether the party is on employer premises or off site, under this method 50% of the expenditure on food and drink will be subject to FBT, will be tax deductible and also eligible to claim GST credits.  The other 50% will not be subject to FBT, not tax deductible and no GST credits can be claimed.  If the 50/50 method is used, the $300 minor and exempt benefits exemption referred to below will not be available.

Employers on ‘Actual’ method For employers who use the ‘Actual’ method, the expenditure needs to be split between employees and non-employees (including clients/customers). FBT is payable on the expenditure applicable to employees only.  If the expenditure can be kept to <$300 per employee (on a per person basis) it should be exempt from FBT but not tax deductible and no GST credits can be claimed.  We suggest if giving gifts to employees that this be done separately to the Christmas party so that the value of the gift is not included in the $300 exemption.

Gifts

The two main types of gifts are those considered to be entertainment (e.g. cinema and theatre tickets, sporting event tickets etc.) and those not considered to be entertainment (hampers, alcohol, gift vouchers etc).

Gifts under $300 which are considered to be entertainment are eligible for the $300 minor and exempt benefits exemption and should escape FBT but are not tax deductible and no GST can be claimed.

Gifts under $300 and not considered to be entertainment are eligible for the $300 minor and exempt benefits exemption and should not only escape FBT but also will be tax deductible and the GST component can be claimed.  This makes non-entertainment gifts far more attractive to employers!