As the holiday season approaches, many employers plan Christmas parties or offer gifts to their employees. While this is a great way to reward staff, it’s essential to understand the Fringe Benefits Tax (FBT) implications. However, with careful planning, some costs may be exempt from FBT under specific conditions.
Exemptions: Property Benefits and Minor Benefits
Employers can potentially avoid FBT on Christmas parties and gifts by utilising either Exempt Property Benefits or Exempt Minor Benefits.
Exempt Property Benefits
Exempt property benefits apply to the costs of food and drink provided to employees as part of a Christmas party, but only if:
- The party is held on a working day.
- It takes place on business premises.
- The food and drink are consumed by current employees.
In this case, the costs of the party can be FBT-exempt.
Exempt Minor Benefits
If the party is held off-site, such as at a restaurant or another venue, the Exempt Minor Benefits rule may apply. For this exemption to be valid:
- The cost per employee must be less than $300 (inclusive of GST).
- Associates of employees, such as spouses and children, are treated as employees for this limit. Therefore, an employee and their partner would have a combined limit of $300 each.
It’s crucial to stay under the $300 threshold, as even a small overage can trigger a substantial FBT liability. For instance, the difference between spending $290 per head and $310 per head is not just $20—it could lead to significant FBT costs.
This $300 limit was set in 2007, and although it was generous at the time, inflation has made it easier to exceed. Employers should be mindful when budgeting for holiday events to avoid exceeding the limit.
Gifts and Separate Considerations
Gifts to employees are treated separately from the Christmas party. As long as the cost of each gift and the party per employee remain under $300, both will be exempt from FBT. It’s important to note that this threshold applies to each individual benefit, not the combined value of all benefits provided.
For example, if an employee receives a gift and attends a party, both can be FBT-exempt if each is valued under $300. The exemption does not apply to clients, meaning no FBT is payable for invited clients attending the party.
Additional Considerations
- If FBT does apply, the employer may be able to claim an income tax deduction for the costs of the party. However, if the event is FBT-exempt, the costs are not deductible.
- Regardless of the event size, venue, or guest list, the ATO advises businesses to keep detailed records of all expenses related to the party for tax purposes.
By staying informed and careful with spending, businesses can manage their holiday festivities while minimising FBT liabilities.
