It might only be October, but if you’re planning an end-of-year celebration for your team, now is the time to think about tax.
Venues book out fast, budgets get set, and once the invitations go out it’s much harder to change things. A few early decisions, like where you celebrate, who you invite and how much you spend per head, affect whether you pay Fringe Benefits Tax (FBT) and what you can claim.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax on extras you give your staff on top of their wages, such as a team dinner or party.
The “benefit” is what your staff get, and the tax is what your business pays for providing it. Your employees don’t pay anything, and because the FBT rate is high, a fringe benefit can end up costing you close to double what you spent on it.
Here’s what to keep in mind while you plan.
1. Keep it under $300 per head
Under the ATO’s minor benefits exemption, a party generally won’t attract FBT if it costs less than $300 (including GST) per person and is provided infrequently. The cost per head is based on who actually turns up, not who you expected.
Why this matters: A party costing exactly $300 per head doesn’t qualify. Book a $5,000 package for 20 people and only 15 come, and your cost per head jumps from $250 to over $330. If you regularly shout the team dinners or drinks, your Christmas party may not count as a one-off either.
2. Where you celebrate changes the rules
A party at your workplace on a working day, for current employees, is exempt from FBT regardless of cost. If partners or family come along, their share is usually exempt too if it’s under $300 per head. Off-site, the $300 rule applies to everyone who attends.
Why this matters: Go over $300 per head off-site, and FBT applies to the full cost for employees and their partners, not just the amount above the limit.
3. FBT-free usually means no deduction
Christmas parties are classed as entertainment, and for entertainment the tax deduction is linked to FBT. If the party is exempt, you generally can’t claim a deduction or GST credits.
Why this matters: For most small businesses, an FBT-free party is still the simpler option. Just don’t budget on getting the cost back at tax time.
4. Choose gifts carefully
Hampers, wine and flowers are generally FBT-free under $300 per person, and you can usually still claim a deduction and GST credits. Entertainment gifts like concert tickets or restaurant vouchers work like the party itself: FBT-free under $300, but not deductible.
Why this matters: Gifts are assessed separately from the party, so a $150 hamper and a $200 per head dinner can both fall under the limit. Gifts for clients and suppliers don’t attract FBT either, and non-entertainment client gifts are usually deductible.
Planning your celebration?
A little planning now means you can enjoy the celebrations in December without any surprises later on down the track. If you’d like to talk through your plans before you book, I’m here to help.
rebecca@kaleidoscopeaccounting.com.au | 0417 859 700
Sources: ATO
