ATO Rulings You Need To Know For Christmas Parties and Employee Gifts
The Holiday Season is fast approaching and as employers you may be already thinking about Christmas parties and giving of gifts, if any, to your clients and staffs. However, are you aware of the tax implications imposed by ATO in regards to these benefits.
Christmas parties are considered to be “entertainment benefits” and may attract Fringe Benefit Tax (FBT) unless specifically exempt. If you are not a tax exempt organization and not using 50-50 split method for meal entertainment, the costs (such as food and drink) for Christmas parties are exempted based on the following:
- The costs are considered to be minor benefits if they are provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis, which is not a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.
- The costs are provided on the business premises on a working day. However, where employees’ families (i.e. associates) also attend and the cost is $300 or more inclusive of GST, there is FBT on the associates portion of food and drink and a tax deduction and GST credit can be claimed on that portion. The clients attending the party are not subject to FBT, but no income tax deduction or GST credit can be claimed on their portion of the cost.
- The costs associated with Christmas party is held off the business premises is exempt from FBT where the cost for the employee and their associate is each less than $300 inclusive of GST but no tax deduction or GST credit can be claimed. The cost of clients attending the party are not subject to FBT, and no tax deduction or GST credit can be claimed on their portion of the cost.
Gifts provided to employees at a Christmas party
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
The provision of entertainment gifts has different tax implications (examples include theatre tickets, passes to attend a musical, live play, movie, tickets to a sporting event or providing a holiday). Where the cost for the employee and their associate is each less than $300 GST inclusive, FBT is not payable, and no tax deduction or GST credit can be claimed.
However, if the cost for the employee and their associate is each $300 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable as well. The cost of any entertainment gifts provided to clients is not subject to FBT, and no tax deduction or GST credit can be claimed.
It is important that businesses maintain separate accounts in the general ledger for recording the above transactions to ensure that the correct income tax, GST and FBT treatment is applied.