The holiday season is a time for celebration, but it’s also a time to stay mindful of Fringe Benefits Tax (FBT) when planning parties and gifts for employees. Here’s how you can minimise your liability while ensuring a memorable festive season.
How to structure a Christmas party to avoid FBT
Planning your Christmas celebration strategically can help you avoid unnecessary FBT.
On-premises parties: If you hold a Christmas party on your business premises during working hours for current employees only, the food and drink will not be subject to FBT.
Off-site or inclusive events: If the party is off-site or includes associates/family of employees, provided the cost for each person is less than $300, the minor benefit exemption will apply.
IMPORTANT NOTE: The cost of the Christmas party is income tax deductible only to the extent that the costs are subject to FBT. Therefore, if the expense is exempt from FBT, no tax deduction will be allowed.
Understanding minor and infrequent benefits
The $300 threshold: If the entertainment or gift is less than $300 per employee, the minor benefit exemption applies.
The “infrequent and irregular” trap: This condition is key. If you provide similar benefits too often, the minor benefit exemption may fail for that benefit type. As a general guideline, benefits should be provided no more than 5 times per year. So if you’re consistently having dinners with staff, the Christmas party may not be exempt from FBT even if the cost is less than $300.
Employee benefits vs client benefits
Client benefits: Benefits provided to non-employees (such as clients or suppliers) are generally not subject to FBT. While FBT is not payable, these expenses are generally not deductible for income tax purposes, and GST credits are usually not allowed.
Employee benefits: These remain subject to FBT unless an exemption applies.
Common questions we’re being asked
“If I give each employee a gift hamper valued at $250, am I safe from FBT?”
Yes, since the value of the gift is less than $300, provided infrequently, and there are no associated benefits. If the gift is considered entertainment-related (e.g., theatre tickets, a restaurant voucher, a holiday voucher), the expense will only be tax-deductible when the amount is subject to FBT, and GST credits cannot be claimed.
“Do gifts to clients also attract FBT for us?”
Generally, no – FBT applies only to benefits provided to employees (or their associates). So gifts/entertainment for clients/suppliers are outside FBT, but the expense will not be tax deductible, and no GST credits can be claimed.
“How many times can we have these ‘minor benefit’ type functions before we lose the infrequent status?”
There is no fixed number published by the ATO, but guidance notes that if you provide similar benefits frequently (say, every month), then the infrequent requirement likely fails, and therefore the minor benefit exemption might drop away.
Plan ahead with Kaleidoscope Accounting
FBT planning is all about balancing festive generosity with financial responsibility. We specialise in helping businesses navigate these complexities, all whilst maximising your budget and minimising your tax liability.
Let us help you plan a festive season that’s both generous and tax-smart!
rebecca@kaleidoscopeaccounting.com.au | 0417 859 700
