Fringe Benefits Tax and the holiday season
Posted by Northadvisory on December 10, 2020
The 2020 festive season is upon us! We are decking the halls and merrily singing carols to lift our spirits after a challenging year. For many businesses, Christmas parties are on the calendar and staff gifts are on order.
With the giving underway, it’s important to monitor how much is being spent, to make sure you minimise your FBT obligations. The ATO does not have a separate category for Christmas specific expenditure, so you need to be mindful that some things might attract FBT.
What is Fringe Benefits Tax (FBT)?
The ATO defines a fringe benefit as “a ‘payment’ to an employee, but in a different form to salary or wages.”
ATO’s examples of fringe benefits include:
- allowing an employee to use a work car for private purposes
- paying an employee’s gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as school fees
- giving benefits under a salary sacrifice arrangement with an employee.
Fringe benefits tax is paid by the employer and is calculated on the taxable value of the benefit. It is treated separately to income tax, and employers perform a self-assessment of their liability for the FBT year.
While the ATO doesn’t separate benefits provided at Christmas from other FBT obligations, there are exemption opportunities that enable employers to give generously, if they choose.
Minor benefits exemption
If the benefit is classified as a ‘minor benefit’, then it is exempt from FBT. And to determine the ‘minor’ classification, the ATO has set the value at less than $300.
This means that if you want to give each of your staff a non-entertainment gift, such as a Christmas hamper – valued at $250, there will be no FBT liability on the gifts.
This minor benefit is also applicable if you wanted to give an additional gift to the spouses of your staff. They are recognised as associates and also fall under the eligibility for this exemption.
The ATO extends the FBT exemption where the benefits meet these criteria:
- provided to staff members or their associates (spouse or children),
- provided on an irregular or infrequent basis,
- not considered as a reward for performance or services.
So, when you are deciding how to gift your team, the $300 threshold is an important figure to keep in mind.
When it comes to your work Christmas party, there are a number of factors to consider. A party is recognised as ‘entertainment’ and therefore not tax deductible. Plus, the ATO has clear guidelines for FBT liabilities.
If you host the party on a workday at your business premises, then the catering costs (food and drinks) attract the ‘property benefits exemption’ and are not subject to FBT.
However, this exemption is only applicable to employees… if associates attend the party, then the FBT liability will depend on the cost per head.
In this instance, the minor benefits exemption highlighted above could be applicable if the cost per head of the party is less than $300.
The minor benefits exemption could also be applied if you host the party offsite – at a restaurant or event space, providing the cost per head remains under the threshold.
As an example, we can consider three different scenarios:
1. An employer holds a Christmas dinner for employees at a restaurant, with a cost of $150 per head. There will be no FBT implication as the minor benefits exemption applies.
2. A company hosts a Christmas party at an event centre for its employees and their associates, with a cost of $195 per head. Again, there will be no FBT implication as the minor benefits exemption applies.
3. A small business has a Christmas party on its premises on a workday afternoon, for its employees and their associates, with a cost of $80 per head. There will be no FBT implications for the employees as it is an exempt property benefit. And there are no FBT implications for the associates, as the minor benefits exemption applies.
If you intend on covering the cost of transportation for your employees, it’s critical that you understand how the ‘to’ and ‘from’ locations can impact your FBT obligations.
For example, if you are catching taxis from the office to the restaurant for your Christmas party, then the ATO considers this part of the minor benefit cost per head calculation. But if your team is travelling between home and the party venue then this could attract FBT.
Gifts of cash
If you’d prefer to give your employees a financial bonus, rather than a gift or paying for a nice night out, the cash payment is treated in the same way as salary and wages.
PAYG withholding and super guarantee obligations will be applied and the ATO will treat the bonus as ordinary time earnings.
Ask a professional
If you are unsure about the FBT implications of your festive season plans, please contact our team to discuss your situation. We can help guide you through your obligation and determine where there are opportunities to reduce your liabilities.