Christmas Grinch: FBT Implications on the Christmas Period

Leading into Christmas, it is important to understand what financial implications the festive season can have on your business. This time of year, when gift giving and Christmas parties begin, you must consider if any Fringe Benefit Tax implications apply to you.

What does this mean?

Fringe Benefit Tax (FBT) is tax paid by the employer on extra benefits provided to staff or staff's family/associates. A Fringe Benefit (FB) is providing something extra to staff that is not their salary, an extra benefit. Employees don't pay the tax on FB, employers do. If the total taxable value of the FB is over $2,000 for the whole year, it’s reported on an employee's group certificate which can affect their government benefits.

While a Christmas party/gift may seem harmless, some rules apply. Traditionally, this is an area where many business owners overlook keeping good records.  But details such as; where you went, who went, and what were the costs involved can be important when tax time comes around. Keeping detailed records alleviates confusion, can assist when classifying expenses and ultimately can reduce the tax payable.

Different rules and tax implications may apply depending on who is receiving the benefit, whether it be staff and their partners or a client.

Staff Christmas parties and gifts to staff are subject to FBT unless they fall under one of the following exemptions.

There is a minor benefits exemption, under which gifts valued less than $300 per staff member are exempt from FBT. For example, if you provided each of your staff a $100 gift voucher for Christmas, that would be exempt from FBT. Gifts valued at over $300 have FBT payable, generally at a rate of 47% of the grossed-up value (with concessional treatment for certain employers, such as Charities & public benevolent institutions)

Christmas parties may also be exempt from FBT if the cost per person is less than $300 per person.  Alternatively, a Christmas party may be exempt from FBT if they are provided on a working day on your business premises.

Some gifts to staff may be exempt from FBT or have a reduced taxable value under the normal FBT provisions. And if someone is on Santa’s nice list and has been very good this year, the provision of an electric or plug-in hybrid vehicle with a value at first retail sale below $84,916 is now fully exempt from FBT for vehicles first held after 1 July 2022.

Coming towards the Christmas period, we often see an increase in gift giving and events for staff and clients which business owners often forget to record, and may not understand the additional tax costs involved.

It is important for business owners to remain organised and maintain a record of all expenditure involved with gift giving and Christmas Parties to minimise the tax cost involved in providing these benefits.  If in doubt, you should seek assistance before providing the gift or party to ensure that you can enjoy the Christmas period and avoid a tax hangover in the New Year.

Author: Scott Vollmerhause