As the festive season approaches, many businesses will be organising Christmas functions and possibly providing gifts to their staff, clients and suppliers. The taxation implications of such activities are often disregarded. To clarify any uncertainties in respect of this expenditure, we have outlined below the taxation implications of such activities, whilst identifying various tax reliefs available.
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 be generally 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 premises, 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 is 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.
Please note that in both scenarios, the preferred tax outcome is generally an exempt fringe benefit with no deduction or input tax credit claimable.
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 and groceries, 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.
Costs incurred in providing glasses of champagne, hot meals, theatre tickets and 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 abovementioned activities, and should be used as a guide only. Please contact your LBW Chartered Accountants representative for further assistance where required.
