Christmas Parties and Gifts for 2015
Nov 17, 4 years ago

Christmas Parties and Gifts for 2015

Christmas is on the way and many employers will be planning their annual year-end “bash”. In addition, many businesses will be considering what gifts, if any, they will provide to clients and employees. However, an important issue to consider is the possible FBT and income tax implications of providing “entertainment” to staff and clients.

One major consideration is the “less than $300” minor benefit exemption and the fact that the ATO now accepts that different benefits provided at (or about) the same time are not added together when applying this threshold. Basically, this means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300!

Note: Note that, where a deduction is available for Christmas functions (including gifts), no tax deduction is allowed to the extent to which a GST input tax credit can be claimed.

Christmas Parties – electing to use the 50/50 method

Food and drink provided (irrespective of where the party is held or who is attending) – only 50% of the total expenditure is subject to FBT and is tax deductible.

Under the 50/50 method, the following traps must be considered:

  • Where the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT; and
  • The less than $300 (<$300) minor benefit exemption cannot apply; and
  • The taxi travel exemption cannot apply.

Christmas parties – actual method

The actual method applies where an employer has not made an election to value their meal entertainment expenditure for FBT purposes under either the 50/50 split method or the 12 week register method.

Calculating the taxable value

FBT is generally only payable on that portion of meal entertainment provided to employees and their associates (e.g., family members). Therefore, FBT is not payable on entertainment provided to non-employees (e.g, clients).

Employers can calculate how much of their meal entertainment relates to employees and family members on the basis of either:
• The cost attributable to each person; or
• A ‘per head’ apportionment, where an exact allocation cannot be easily made.

“Recreation expenditure” at a Christmas party

Where an employer hires a band, a DJ, a comedian or any other entertainer, for a Christmas party or similar function, this expenditure is generally considered ‘recreation expenditure’ and is generally dealt with under the actual method.

To the extent that any recreation expenditure relates to clients, suppliers etc, there is no FBT and no tax deduction.

Exclusive use of premises or facilities

Where an employer hires or leases premises or other facilities (e.g., a reception centre or a corporate box, etc.,), for the exclusive use of their own staff, family members and clients, this expenditure may be dealt with under the 50/50 method (instead of the actual method)

Note: Such exclusive use qualifies the hiring costs as Entertainment Facility Leasing Expenses (‘EFLEs’).

Where the 50/50 split method is used for EFLEs, 50% of the employer’s EFLEs are:
• Subject to FBT; and
• Deductible

Irrespective of who is being entertained (e.g., employees, clients, suppliers or contractors).

Christmas Gifts

Gifts which ARE NOT considered to be entertainment.

These generally include, for example;
• A Christmas hamper, a bottle of whisky, wine, etc.; and
• Gift vouchers, a bottle of perfume, flowers, a pen set etc.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• Gifts to employees and family members – FBT is payable (except where the minor benefit exemption applies) and a tax deduction is allowed.
• Gifts to clients, suppliers, etc. – no FBT, and a tax deduction is allowed.

Gifts which ARE considered to be entertainment

These generally include, for example:
• Tickets to attend a theatre, live play, sporting event, movie or the like; and
• A holiday airline ticket or admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:
• Gifts to employees and family members – FBT is payable and a tax deduction is allowed (except where the minor benefit exemption applies); and
• Gifts to clients, suppliers, etc. – no FBT and no tax deduction.

The minor benefit exemption

Generally speaking, where the value of a Christmas related benefit (e.g., food and drink, and a gift) provided to an employee or family member is <$300, it may be exempt from FBT (subject to certain other conditions.

Surprisingly, for the purposes of the $300 minor benefit threshold, the following tips should be considered:
• The $300 threshold is applied separately to each benefit provided to an employee, and/or each benefit provided to a family member (e.g. Spouse).
• All benefits provided to an employee or a family member is relation to a Christmas function are no longer grouped when applying the <$300 threshold (i.e., the <$300 threshold is applied separately to each benefit).

However, note that, if the minor benefit exemption applies to the provision of entertainment benefits to an employee, no tax deduction can be claimed.

Example

An employer hold an external Christmas party for employees and their spouses.

The cost of food and drink per person is $250, and no other benefits are provided.

Assuming the actual method is adopted:
• For employees attending with their spouse – no FBT is generally payable (i.e., the per had cost is <$300); and
• For employees attending alone – no FBT is generally payable (i.e., the per head cost is <$300).

In either case, no tax deductions will be allowed.

Assuming the 50/50 method is adopted:
• 50% of the total expenditure is subject to FBT and is tax deductible.

Gift vouchers

What if employees with spouses are given a gift voucher (for their spouse) to the value of $150 (assuming this benefit is infrequent and irregular, etc.)?

Under the actual method, for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the voucher) is <$300 (i.e., the benefits are not aggregated).

No deduction is allowed for the food and drink, but the voucher is deductible.

Assuming the 50/50 method is adopted:
• 50% of the total cost of food and drink is subject to FBT and deductible; and
• The total cost of all gift vouchers is not subject to FBT because the cost is <$300. As the vouchers are not entertainment, the cost is deductible.

This area of the tax system is always a bit of a minefield. Please contact us if you need any clarification on the above to ensure that not only do you keep your employees and customers happy, but the way you pay for it maximises the benefit to the company.

Should you have any queries in regards to the above article, please do not hesitate to contact our office on
02 4958 1829 or email our Client Support Manager on email@davidobrien.com.au

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