By Brett Driscoll
Reference: ATO Website, http://www.ato.gov.au/ (as at 25.11.09)
Christmas can sometimes be a confusing time when it comes to FBT, especially when ‘border-line’ purchases are concerned, such as staff Christmas presents and parties! Due to popular demand, we have tracked down some information available from the ATO website to help you out when it comes to deciphering this matter.
Implications For Taxpaying Body
If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party.
Exempt property benefits
The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party if not otherwise exempt under the minor benefits exemption.
Exempt benefits - minor benefits
You should note the change in our view to the application of the minor benefits exemption to Christmas parties and gifts. The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.
The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. For the FBT year beginning 1 April 2006 and prior years, the minor benefits threshold was less than $100 rather than less than $300.
Gifts provided to employees at a Christmas party
A Christmas gift or hamper provided to an employee that meets the conditions of the minor benefits exemption rule and is less than $300 will not attract any FBT.
The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.
Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.
Tax deductibility of a Christmas party
The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.
The costs of entertaining clients are not subject to FBT and are not income tax deductible.
Christmas party held on the business premises
A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit.
Example: A small manufacturing company decides to have a party on its business premises on a working day before Christmas. The company provides food, beer and wine.
The implications for the employer in this situation would be as follows:
- If current employees only attend, then there are no FBT implications as it is an exempt property benefit.
- If current employees and their associates attend at a cost of $180 per head, then:
- For employees there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply.*
- For associates there are no FBT implications as the minor benefit exemption applies.*
- If current employees, their associates and some clients attend at a cost of $365 per head, then:
- For employees there are no FBT implications as it is an exempt property benefit
- For associates a taxable fringe benefit will arise as the value is equal to or more than $300
- For clients there is no FBT payable and no income tax deduction.
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied
Christmas Parties Held Off Business Premises
The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.
Example: Another company decides to hold its Christmas function at a restaurant on a working day before Christmas and provides meals, drinks and entertainment.
The implications for the employer in this situation would be as follows:
- If current employees only attend at a cost of $195 per head, then there are no FBT implications as the minor benefits exemption applies.*
- If current employees and their associates attend at a cost of $180 per head, then there are no FBT implications as the minor benefits exemption applies.*
- If current employees, their associates and clients attend at a cost of $365 per head, then:
- For employees – a taxable fringe benefit will arise
- For associates – a taxable fringe benefit will arise
- For for clients – there is no FBT payable and the cost of providing the entertainment is not income tax deductible.
* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.
Implications For Tax-Exempt Body
If you are a tax-exempt body, the following explanations may help you determine the FBT implications arising from a Christmas party.
Gifts provided to employees at a Christmas party
A Christmas gift or hamper provided to an employee that meets the conditions of the minor benefits exemption rule and is less than $300 will not attract any FBT.
Christmas party held on business premises
The exempt property benefits (property benefits provided on your business premises) would not apply as the tax-exempt body entertainment provisions would apply.
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply.
Example: A tax-exempt organisation decides to run a Christmas morning tea for its sponsors. Employees attend as well. There would be no FBT implications as the minor entertainment benefit provided to the employees is incidental to entertaining the sponsors.
Christmas party held off business premises
The minor benefits exemption rule is unlikely to apply to any staff Christmas party provided by a tax-exempt body unless very limited circumstances apply. The example immediately above will apply in these circumstances.
So How Does ProMaster Fit In?
ProMaster can provide a simple method to capture the expenses for Christmas using Expense Types. It is recommended that two Expense Types are created.
Expenses for Christmas - unspecified
Create a simple “Point and Click” expense type, defaulted and fixed to a GL account set up for Christmas expenses. By fixing the GL coding, the Expense Type will merge with the defaults on User Accounts and be captured without exception to the correct account.
You may wish to use this for gifts as well, however the costs should be recorded for each employee implying that a Participant Type based breakdown is required.
Expenses for Christmas – allocation by participant type
Create an expense type with a name like XMASFUNCTIONS. Make sure the GL or Tax is not fixed, (unless you specifically want it to defaulted accounts only) and select Participant Information – Employee details.
Link this to a Defined Window with the necessary Price Breakdown being split into the necessary categories of expense applicable to a Xmas function. Keep in mind whether your Christmas function is on-site or off-site.
Alternatively have only one Price Breakdown and create multiple Breakdown Options. This means the cost will be a total value, and the amount allocated to a selected category.
Prepare the Defined GL Allocation to match the participant type, the Option and the Category to the relevant Accounts set up for capture of Christmas expenditure.
Once applied, an employee entering the details for the Office function at a restaurant will need to breakdown the participants by name of the employee list (or the user list depending on where your system sources this from). Additionally where spouses attend, the quantity may be increased to reflect costing to each employee their ‘share’.
Expenses for Christmas – allocation by employee
Where your ProMaster has a HR feed (loaded through the HR Import Activity) a new configuration switch from Version 7.0 provides the ability for the participant costing to be at the individual employee level.
This provides unique cost distribution to each employee’s default responsibility codes, rather than against the Host’s default codes. The config switch is under Expenses / Verify and is labelled “Breakdown By Employee”. Be aware, this will impact every participant breakdown expense type, but perhaps that might be a preferential method.
Please contact us if you have any questions regarding FBT and ProMaster.
Have a Great Christmas and let ProMaster take care of your Expenses!