As Christmas presents go, finding out belatedly that the cost of providing Christmas gifts and entertainment to employees has doubled due to fringe benefits tax (FBT) and payroll tax probably isn’t top of your list. However, this is the gift that some employers get to open in May/June every year.
The minor benefits exemption can apply to gifts costing less than (not equal to) $300 and providing goods to employees in this way can be a great way of delivering value to them as compared to say a cash bonus that will be subject to pay as you go (PAYG) withholding. Exempt gifts may still be eligible for an income tax deduction and goods and services tax (GST) input tax credit.
For employers who value meal entertainment using the “actual method” a Christmas party will generally be exempt from FBT where the per-head cost is less than $300. In calculating the per-head cost, guests can be included which helps spread the cost when measuring against the $300. On the flipside, expenditure with a close nexus to the party such as paying for attendees’ transport home must be factored in when measuring against the $300.
Note that different valuation rules apply to Christmas parties and associated travel for employers who have elected to value meal entertainment using the 50/50 method.
Travel to and from the party
Many employers will pay for/reimburse employees for the cost of a taxi/Uber home from the event. Where a party has been hosted offsite, this payment/reimbursement of the cost of getting home will represent a fringe benefit. There is a specific FBT exemption for taxi travel that begins or ends at an employee’s place of work and there have been encouraging signs recently that the Australian Taxation Office (ATO) agrees with the view that this exemption should also apply to ride-sharing services such as Uber.
Three wise tips
To avoid the Grinch stealing your Christmas by way of an FBT bill, here are some tips to keep in mind as we enter the silly season:
- If issuing gift cards, don’t be tempted to provide $300 cards, as this is not less than $300 and will not be eligible for the minor benefit exemption.
- Make sure you are taking a corporate tax deduction for “non-entertainment gifts”, remembering these include gift vouchers. This might also help you decide the type of gifts to provide.
- Remember that Christmas gifts are considered separately to the Christmas party when determining whether the minor benefit exemption can apply.
Avoid the Grinch and enjoy your celebrations.