With the Christmas season underway, many businesses are planning parties or providing gifts for their employees. Some may have even considered offering tokens of appreciation to clients and customers. While this is, of course, all in good cheer, there are still a few details you’ll want to consider tax-wise, before you get that party fully started.
When Does Fringe Benefit Tax Apply?
As the ATO explains, to determine if fringe benefit tax applies to your event or gift, you’ll need to focus on a few key factors:
The total cost of the party or gift
The time of day the party is held
The type of gift you give
Who is invited to the party, or who receives the gifts — employees, customers, or both?
Your answers to these questions will help you to know if there are any tax implications for the Christmas festivities.
Work Christmas Parties: An Overview
Holding a party off the property of your business will have different implications than a party held on work grounds. For example, with a party in which only employees attend, if it is held on the work premises during working hours then it would be a property benefit exemption. If it is held outside of working hours or off-property, there may be fringe benefits tax implications if the cost rises to $300 or above per person.
The next thing to consider is who will be attending your Christmas party. Will it be employees? Employees with their families? Employees and clients? If it is employees only or employees and their family members, and the cost is below $300 per person, then the minor benefits exemption may apply. If the cost is $300 or above per person, then a taxable fringe benefit may occur. As far as clients are concerned, a Christmas party would be considered entertaining, and entertaining customers is not subject to fringe benefits tax, nor is it income tax deductible. Of course, if you have a party with both employees and clients, the employees may still be subject to fringe benefit tax.
This can all quickly become extremely complicated. Speaking with your TCA accountant about your specific situation is definitely advised, and can save you a great deal of stress. The ATO also has a guide to calculating the taxable value of entertainment.
Employee and Client Gifts: Things to Consider
Giving a gift to your employees can be a wonderful way to celebrate their contributions during the Christmas season. If the gift is below the $300 threshold, then it is likely to be considered a minor benefit and be exempt. This is true even if you give the gift at a Christmas party that the company is also providing. In this case, although the costs are associated with each other, you should consider the cost of the party and the cost of the gift separately. If they are both under $300, then they are both likely minor benefits and exempt. Of course, like with parties, if the cost of the gift reaches $300 or over, then there is probably a taxable fringe benefit.
Don’t Let Tax Confusion Ruin Your Christmas Plans
With all of these nuances to consider, figuring out the implications of taxable fringe benefits on your Christmas party and gifts can be a daunting task, not to mention a surefire way to dampen your Christmas spirit. Book an appointment with TCA Darwin to discuss the needs of your business this season. We can help you stay on track this Christmas — and year round.