With the festive season almost upon us, have you considered how your Christmas spending may affect your tax?
You might be planning to reward your employees with gifts or a Christmas party for their hard work throughout the year, so it’s important to understand how such Christmas spending could affect your tax obligations.
Tax Obligations When Hosting a Christmas Party
The costs of providing a Christmas party is income tax deductible, only to the extent that it is subject to fringe benefit tax (FBT). Any costs that are exempt from FBT (exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. Any fringe benefits provided by you, an associate, or under an arrangement with a third party to any current, past and future employees and their associates (spouses and children), may attract FBT.
Exempt benefit – minor benefit
The provision of a Christmas party to your employees may be a minor benefit and exempt if it costs less than $300 per employee and certain conditions are met. The threshold of less than $300 applies to each benefit provided, not to the total value of the associated benefits. Keeping your budget below this figure is key to keep your Christmas party and gifts, free from FBT.
The provision of a gift to an employee may also be a minor benefit that is an exempt benefit if the value is less than $300. If both the Christmas party and gift are less than $300 in value per employee, and the other conditions of a minor benefit are met, they are both FBT exempt benefits.
If you are looking to ensure your festivities are kept tax-free, it is best to host your party during the week and limit the attendees to staff only. However, if family of employees also attend, it is important to remain below the $300 budget to satisfy the minor benefit conditions. Be sure to remember this total includes meals, drinks, entertainment and associated benefits.
According to the ATO, the minor benefit threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits. Therefore a Christmas party and a gift for an employee, will be considered separately, allowing you to splurge a little on your employees.
While this all seems very straight forward, the minor benefit exemption is dependent on the details and specific facts related to your situation.
If you need assistance planning your Christmas party and employee gifts and how that all relates to your tax, contact the W M Wright & Co team today on (02) 4721 7444.
