Christmas Season & FBT Obligations

Nov 22, 2014 | LBW News

Adam Roberts

As the festive season draws closer, many businesses will be organising Christmas functions and possibly providing gifts to their staff, clients and suppliers. To clarify any uncertainties in respect of this expenditure, we have provided below a summary of the Fringe Benefits Tax (FBT), Income Tax and GST implications of various benefits provided, whilst identifying various tax reliefs available. We note that the below summary is specific to the commonly used “Actual” method of treating the provision of entertainment. You should consult your LBW Chartered Accountants’ representative for further advice if the 50:50 method has been elected.

Benefit ProvidedDoes FBT Apply?Income Tax Deduction?Input Tax Credit Available?
Christmas Party or a Similar Functionat Employer’s Business Premises·         Employees·         Associates·         Clients, contractors, suppliers  NoYesNo  NoYesNo  NoYesNo
Christmas Party or a Similar Functionat Restaurant, Function Centre etc.·         Employees·         Associates·         Clients, contractors, suppliers  YesYesNo  YesYesNo  YesYesNo
Gifts (such as Bottle of Wine, Christmas Hamper, Flowers)·         Employees·         Associates·         Clients, contractors, suppliers   YesYesNo   YesYesYes   YesYesYes
Gifts (such as Theatre or Movie Tickets)·         Employees·         Associates·         Clients, contractors, suppliers  YesYesNo  YesYesNo  YesYesNo
Please refer to the below notes for various tax reliefs available. Please note that with the above benefits provided, the preferred tax outcome is generally an exempt fringe benefit with no deduction or input tax credit claimable.

Christmas Party (Held On-site)

Where held at the business’ premises, any Christmas party costs incurred by the business on behalf of employees will be exempt from FBT, under the property benefit exemption, regardless of the value incurred. Please note however that as a consequence, no input tax credits or income tax deductions are claimable.

Where family members are invited to such an event, any costs incurred by the business on behalf of these family members will generally be subject to Fringe Benefits Tax (FBT). Where these costs are subject to FBT, the business will be entitled to claim input tax credits and an income tax deduction, for the full cost incurred.

Where the cost incurred is less than $300 per associate, the minor benefit exemption may be available. If this exemption is utilised, no FBT will be payable. Please note however that as a consequence, no input tax credits or income tax deductions will be claimable. 

Where suppliers or clients are invited to such an event, regardless of the value of the benefit provided, the cost incurred will not be subject to FBT. No input tax credits or income tax deductions are however available to be claimed.

Christmas Party (Held Off-site)

Where held at an external premise, any Christmas party costs incurred by the business on behalf of employees and their family members will generally be subject to Fringe Benefits Tax (FBT). Where these costs are subject to FBT, the business will be entitled to claim input tax credits and an income tax deduction, for the full cost incurred.

The minor benefit exemption may however also available for these benefits where they do not exceed $300 per head, as detailed previously. If the exemption is utilised, no input tax credits or income tax deductions are claimable.

As was the case for on-site events, where suppliers or clients are invited to such an event, regardless of the value of the benefit provided, the cost incurred will not be subject to FBT, however no input tax credits or income tax deductions will be able to be claimed.

Gifts

In determining the taxation implications of a gift, it must be established whether the gift is deemed to be a “Provision of Entertainment”. In particular, regard should be given to the character of the entertainment provided. This character is distinct from the property itself and relates to the immediate and active use of the property.

Costs incurred in the giving of items of property, such as bottled spirits or hampers have an enduring character, and only an indirect connection to any immediate entertainment. Consumption is usually delayed. The items of property usually require further steps before they can be consumed, and consumption can occur over a long period. Hence, these items of property do not generally constitute provision of entertainment.

In this instance, a tax deduction and input tax credit will be claimable. FBT will be payable on a benefit provided to employees only, unless the minor benefit exemption is available. If this exemption is utilised, the benefit is exempt from FBT and no input tax credits or income tax deductions are claimable.

Gifts of this nature provided to suppliers and clients will however be FBT exempt and a tax deduction and input tax credits will be claimable.

Costs incurred in providing movie or theatre tickets or holiday accommodation, have a dynamic and immediate character. Consumption can usually occur immediately. These items of property do not last beyond initial consumption. Hence, these items of property would generally constitute the provision of entertainment.

In this instance, gifts to suppliers and clients will not be subject to FBT and no income tax deduction or input tax credit will be claimable. Where the benefit is provided to employees and their family members, FBT will be payable, tax deductible and input tax credits claimable, unless the minor benefit exemption is utilised. If utilised, the benefit is exempt from FBT and no input tax credits or income tax deductions are claimable.

Please be aware that this information represents a summary of the FBT and tax implications of the above mentioned benefits provided, and should be used as a guide only. Please contact your LBW Chartered Accountants’ representative for further assistance where required.

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