Dive into the FBT, income tax and GST consequences of Christmas parties including:

common FBT exemptions for entertainment
in-house v offsite party
treatments for employees v associates v clients
meal entertainment v recreational entertainment
is there FBT on gifts? Are gifts deductible?

Date published: 7 Dec 2021

Cheat Sheet included in the Resources tab under the video.

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TRANSCRIPT:

Let's go through the actual rules and the actual scenarios in a deep dive.

Scenario 1 - In-house Xmas party

So, first question, OK.

Where are you hosting this party? Why is that important Dan? So in in the ATO and lawmakers wisdom, Yeah, they've separated food provided in house during the workday from food provided externally, outhouse, outhouse and so in house and at

house. A very different and the fringe benefit treatments. Both are very different. Yeah. OK, so let's just say that on on the afternoon, the last day of work and you decide to throw a couple of hours worth of worth of a little functions, beers and things for your employees and things.

A. Employees only

Now we get into the more complex area here, is it only like who's going, so where is it, who's going? So at the moment we're saying it's on business premises on a working day, only current employees attending. Right.

There's no fringe benefit as an it's an exempt property benefit, regardless of the cost. All right. But there's no tax deduction allowed and you're not allowed to claim GST credits. Hmm. So, uh, there's no FBT tick. Yeah, you can't claim the GST on the purchases and you can't claim an income tax deduction in the purchases.

Businesses can pay for entertainment expense

Uh, but the business can still pay for it. Yeah. So it just gets added back during your income tax reconciliation. If you're in a company, you can pay for it and it'll sit in your profit and loss when it comes to tax time,your accountant should be adding it back. In the tax return. So let's say. For some reason, we hired a comedian and it cost 15 grand. The comedian and then the finger food and drinks was 1000 bucks. Um, we'd be able to pay for that if we're in a company without running into any issues of owing money back or, um, having to set up a loan or anything like that. But what Dan saying is it's not a deduction. So don't think that you can claim the GST back on the comedian. No, I'm not even sure if you get to that point either, if these rules would still apply.

I think this is applied to just kind of like food and drink. Yeah, if you actually provide an entertainment, that could change it completely. Yeah.

B. Employees and associates <$300

So that the next scenario current employees and their associates attend. So like partners?

Correct. But the total cost per head is only 182, like said, less than 300. Yeah. So if your spouse has also come, so it's for the employees, it's still the same rule because it's the same scenario as above.

There's no fringe benefit, there's no tax deduction and there's no GST. However, for the associates, that could be a fringe benefit. Hmm. So the spouse is going means that becomes a fringe benefit, but it's less than a certain dollar value.

It's less than the $300 per head. So that means that it's a minor benefit exemption. Yeah, but still no tax deduction, no GST credits. Just remember that the minor exemptions can only be used if you're using the actual method if you're using the 5050 method that applies to all of the meal entertainment expenses.

So in the first instance, we could literally spend whatever we want on the food and drinks and stuff. Yep, food and drinks. Yeah, but in the second instance, because you're introducing people who aren't directly employees, so which could just be a partner so a spouse, we now have a dollar limit on what we can spend per head per head, correct? So when you which is one of the rules that a lot of people would have heard is like, Oh, if it's less than 300 bucks, it's fine. Yeah, yeah, exactly. Which is why people don't pick up ... Oh it's under 300 bucks.

They still think they can get a tax deduction, claim GST credits, but technically no, you can't. There's a lot of people would be claiming these deductions. Yeah, definitely. Claiming GST back inadvertently. So let's say that now the amount is over $300 per head, but there's also clients coming.

C. Employees, associates and clients >=$300

So there's employees, their spouses and clients. Yeah, for the employees, it's still an exempt property benefit. There's no tax deduction, no fringe benefit, no estate, nothing to work out the expense in relation to them. Yeah. Or just per head.Yeah, because you could split it over. Total thing cost 1000 bucks. There's ten people here. Yeah, three of them are employees. $300 worth. Exactly. For the associates, the FBT applies cost per head is equal to more than 300. And so you can claim a tax deduction and GST credits.But there will be fringe benefits tax on the associates, on the associates. Because often the way it works is you can claim it deduction, but only if you pay fringe benefits tax, correct, on those types of expenses. Correct.

So for the associates, fringe benefits does apply because the total cost per person over 300. But you can claim an income tax deduction and you can claim GST if you pay the fringe benefits, correct.

For clients. What do you think? Not deductible. Correct. No FBT, no income tax, no GST. Yeah. So you can pay for it. The business can you can have people in here for food. Yeah, but you can't claim a deduction for it.

Offsite Xmas Party

And so now we're moving on to the more complex scenario, which is Christmas party held off the business premises, which is which would be a majority of time. You know, normally you'd be having it at someone's house or you'd be having it out to dinner or you'd be somewhere that's not your usual place of work, for sure.

A. Employees only <$300

So first scenario, employees only.But, here's the issue fringe benefit because you're out of the office does now apply. So as long as you're below the 300 dollar limit, there will be no FBT because it's a minor benefit, but you can't claim a tax deduction and you can't claim the GST for it.Yeah. So it's gone from you can spend as much as you want when it's in the office. Yeah. To, um, if it's out of office, you can only spend up to $300 per person to keep it non FBT.Correct. So if it's current employees and their associates, the same rules apply to both. So when it's at the premises, these rules apply to the associates only. But when it's off the premises, it's applied to both the employees and their associates equally.

So, yeah, no FBT, no tax deduction, no GST if it's under $300 per person. $300 per person, including associates. Yes. Okay.

B. Employees and associates <$300

Now current employees, their associates and clients. Over $300 per person. Mhm. So, for employees and in associates, FBT applies as the cost is more than $300. Because you pay FBT,

you can then claim a tax deduction and GST. Yeah. So same kind of thing ... just a little disclaimer that FBT outweighs, yeah, the deductibility advantages of deducting it does expenses basically then for clients and... No FBT, no income tax, no GST.

So same same deal in house or out of house for clients, clients paying for their food and everything, you can pay for it. You don't get a deduction for that.

C. Employees, associates and clients >=$300 with gifts

So, current employees and their associates attend at a cost of less than 300, but you also give them gifts.

Okay, we're adding gifts into the mix now, we're adding gifts... into the mix.. into the mix. So the party costs. No, no fringe benefits because it's less than $300 per person for the party cost. Yeah, there's no tax deduction and no GST.

So you actually split the cost of the presents and the cost of the party. Uh huh. Yeah. So the total party cost was less than $300 per person. Yeah. So there's no fringe benefit, no tax on the party side of things.

But then what happens ... with the gift? There's no FBT because it's a minor fringe benefit because it's less than $300 per gift. Mm hmm. And you can claim a tax deduction and GST credits. [weird happy sound!] ...provided provided their non entertainment gifts.

Okay, so, so a bottle of wine. Gift vouchers. Some flowers, Christmas hampers, these are all examples that the authors of this article have given have non entertainment gifts. OK. Right? Because it's less than this is because it's less than 300 no

FBT, you can claim a tax deduction, and you can claim GST. If it's more than 300, it then becomes FBT. Hmm. And you can claim a tax deduction. The difference is that you can claim the tax deduction for the gift, even if it's not an FBT.

Entertainment gifts, though movie tickets, musical tickets, tickets to sporting events, flights, accommodation, memberships to clubs things that would be considered entertainment. And I think that's a fine line between a gift voucher and a movie voucher, but ... tell me about it.

But in that instance, when it is an entertainment gift because it's entertainment, no deduction, no GST, even if it is exempt. And then when it's when you do pay FBT, you then can claim the deductions for it. So.

Hmm, minefield, be specific with the gift you're going to give then. Yeah. Make it non entertainment, make it not entertainment and less than $300 per person. You mean you should be able to stick to that? Yeah, definitely. So, yeah, in summary, and so entertainment generally not deductible.

Fringe benefits tax on. Correct. Food generally not deductible. Mm hmm. And unless you're paying fringe benefits, tax on it. Correct. And there are circumstances where you can be providing food in house. Mm hmm. But still, there's questions over whether or not that's deductible or you can claim GST on it.

It might not be an FBT matter, but. Yes. Yes. So food and things in house, no FBT, no tax deduction, no GST. So food, entertainment, generally speaking, there are no deductions. If this is for a Christmas party type scenario. If you're providing just general food in the workplace for every day use milk and things ... for a meeting...

So you can claim for that. Yes, that's all allowed, staff amenity kind of stuff is fine. But if you're having a party, yeah, you know, if you're part of the party planning committee, yeah, and you're buying some cake and whatnot, that might not be.

Christmas parties. That's the answer.

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