The festive season is just around the corner, and you’re likely planning staff parties, client events, and gifts. While this is a wonderful time for celebration, it’s also a crucial period to consider Fringe Benefits Tax (FBT).
Mismanaging your Christmas cheer expenses could lead to a surprise FBT liability that lands well after the holidays are over!
FBT Basics:
The ATO defines FBT as a tax paid by employers on certain benefits provided to employees, or their associates (like family members).
– FBT is separate to Income Tax. It’s calculated on the grossed-up taxable value of the benefit.
– The FBT Year is Not the Financial Year: It runs from 1 April to 31 March. This means your December and January expenses fall in the middle of the current FBT year.
– Your licenced tax professional is the best place to get advice about this tricky surprise tax.
🎄 FBT and the Festive Season: Entertainment is the Biggest Trap
Christmas parties and gifts are the most common source of FBT at this time of year. Knowing the rules can be the difference between a tax-free gift and a hefty tax bill.
The ATO’s definition of ‘Entertainment’ is broad and includes:
– Food, drink, and catering at social functions (e.g., business lunches, cocktail parties, staff functions).
– Recreation (e.g., theatre tickets, a harbour cruise, a game of golf).
Here’s how to structure your holiday spending to minimise or eliminate FBT:
The Golden Rule: To qualify for the Minor Benefits Exemption, the benefit must be both minor (under $300) and provided infrequently and irregularly.
📈 The True Cost of FBT: Grossing Up
If you provide a taxable fringe benefit, you have to “gross-up” the value. This means increasing the cost of the benefit to reflect the gross salary an employee would need to earn to purchase that benefit themselves (at the highest marginal tax rate).
The relevant gross-up rates for benefits where you can claim a GST credit (Type 1) is currently 2.0802.
This table shows the real impact:
In short: a taxable benefit can cost your business almost double the original expense.
💡 Action Points:
– Review your Christmas Plans: Are you spending over $300 per person on a Christmas party? Consider splitting the event or keeping the cost down.
– Choose Gifts Wisely: Opt for non-entertainment gifts (vouchers, hampers) under the $300 minor benefits threshold.
– Record Everything: Keep detailed records of every entertainment and gift expense, noting: The total cost / Who attended (Employee, Associate, Client/Other). /The purpose of the expense (e.g., Staff Christmas Party).
– Talk to your licenced tax agent!: If you are considering providing benefits like a company car, paying personal bills, or other non-standard perks, ask questions before you commit.
Don’t wait for a nasty surprise in the New Year. Proactive planning now means you can enjoy the holiday season knowing your books are in order!
All the gory FBT details from the ATO can be found here https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/how-fringe-benefits-tax-works
