Posted on December 4, 2018
With the festive season well and truly under way, are you aware of the tax implications of your Christmas party and Christmas giveaways?
If not, read further to see how you can be smarter when it comes to entertaining and rewarding your staff or clients so that you can reduce your exposure to tax.
Fringe Benefits Tax (FBT) generally applies when a business provides a private benefit, such as entertainment benefits, to an employee or associate.
If you are frequently providing entertainment benefits, then you are probably making use of the relaxed substation requirements and the convenient administration available under the ‘50/50 method’ to determine your FBT liability. This method simply takes 50% of your entertainment expenditure and subjects it to FBT, with the other 50% subject to a GST claim and a tax deduction.
But what if you don’t provide entertainment benefits regularly or frequently?
Well, then you can use the ‘actual method’ to access the ‘minor benefits exemption’. This is arguably THE most valuable FBT exemption with respect to the provision of meal entertainment.
The minor benefit exemption applies if all of the following conditions are met:
- A benefit is provided in respect of an employee’s employment; and
- The value of the benefit is less than $300 (including GST); and
- It would be unreasonable to treat the benefit as a fringe benefit and, therefore, as being subject to FBT because:
- the benefit is being proved infrequently and irregularlyg. less than 12 times per year
- the aggregate value of the minor benefit is not a significant amount
- the minor benefit is provided on an ad hoc basis
Accessing the minor benefits exemption for entertainment expenditure means that you will not be subject to FBT. On the flip side, you generally won’t be able to claim GST or an income tax deduction either.
Example: Using the Minor Benefits Exemption to Strategically Plan your Christmas Party
ABC Pty Ltd satisfies the above conditions and will be holding a Christmas Party. ABC has incurred the following expenditure:
|Entertainment Type||Total Cost including GST||Number of Staff Attending Party||Cost per person||Eligible for Minor Benefits Exemption?|
|Alcohol and Drinks||$1,500||15||$100||Yes|
|Magician performing party tricks||$1,350||15||$90||Yes|
Hot Tip: Gifts to Staff
If you are using the ‘actual method’, and you satisfy the conditions above, then you are able to strategically gift your staff ‘non-entertainment’ gift vouchers or bottles of wine costing less than $300. Not only are these benefits FBT exempt, but you will also be able to claim GST and an income tax deduction.
Bookkeeping Solution for ‘Entertainment’ Expenditure
There is widespread confusion about how the FBT, GST and Income Tax rules work in relation to ‘entertainment’ expenditure. Consequently, we often see clients and/or their bookkeepers incorrectly coding their entertainment expenditure. Clients in this situation run the following risks:
- Not claiming GST credits when they are available
- Exposure to Fringe Benefits Tax
- Missing out on a tax deduction
To mitigate these risks, HCG have developed a Coding Cheat Sheet to help you code your ‘entertainment’ expenditure in your bookkeeping software. If you would like to view a sample of this Cheat Sheet, please email your interest to Grace Shideh GraceShideh@hallconsulting.com.au