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It’s that time of the year again! As we approach the end of 2021, many businesses host Christmas parties and give gifts to their employees as appreciation for a year of hard work. However, some business leaders don’t understand the fringe benefits tax (FBT) implications of such.

In order to avoid significant costs to your business, read this article and learn more about your obligations.

What is Fringe Benefits Tax (FBT)?

A fringe benefit is a type of payment that employees receive separate from their salary or wage. Fringe Benefits Tax is paid by employers on certain benefits they provide their employees or other associates. It applies even if the fringe benefit is provided by a third party through an arrangement with the employer.

It is important to note that FBT is separate from income tax and is computed based on the taxable value of the benefit. You can claim an income tax deduction for the cost of providing fringe benefits and for the FBT you pay. Also, you can claim GST credits for items provided as fringe benefits.

How FBT affects Christmas parties

There’s no separate FBT category for Christmas parties. However, to avoid getting into trouble with the ATO, here are some guidelines.

Exempt property benefits

The costs associated with Christmas parties are exempt from FBT if provided on a working day, on your business premises, and consumed by current employees. The property benefit is not available for associates.

Exempt benefits – minor benefits

A Christmas party is considered a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of your employee may also be a minor benefit and exempt if the cost for each associate is less than $300.

Christmas gifts to employees

A Christmas gift to an employee is a minor benefit that is an exempt benefit when the gift is worth less than $300.

Tax deductibility

Entertainment expenses are not tax deductible, unless those expenses are subject to FBT. A party by definition is entertainment, so you cannot claim a tax deduction for the cost of providing a Christmas party if it is FBT-exempt. A Christmas gift is not an entertainment expense if it is something that the employee takes home to use. FBT-exempt Christmas gifts should still be tax-deductible.

FBT Returns Lodgement

If you have a liability, you need to lodge an FBT return during an FBT year (1 April to 31 March). If you are preparing your own FBT return, the due date to lodge and pay is 21 May. On the other hand, if you use a tax agent that lodges electronically, the due date to lodge and pay is 25 June.

If you’re registered for FBT but don’t need to lodge a return for the year, you can complete a Fringe benefits tax – notice of non-lodgement form.

Need help with your FBT returns? Get in touch with us today to ease your burden and have some peace of mind.