We all know the downside of the day after the Christmas party: the clean-up, hangovers and possibly a few karaoke regrets but don’t get an FBT hangover as well.
Unfortunately, Christmas parties can also attract Fringe Benefits Tax (FBT), meaning that business owners may end up with an unexpected FBT bill after the event.
The ATO allows businesses a leeway of $300 per employee for Christmas parties. This means that if your party works out at less than $300 per employee you should be able to avoid a Christmas party FBT bill.
There is also one FBT loophole that is particularly useful for employers looking to reward people at Christmas time: the $300 limit for fringe benefits applies to each benefit provided, not the cumulative value of all benefits.
Therefore, if you were to throw a party that cost $299 per employee and also give each employee a Christmas gift worth $299, you could avoid paying FBT.
If you’re keen to avoid FBT, holding the party on company premises during work hours will mean that food and drink is FBT free (provided that only employees attend). Also, if legitimate clients are in attendance at the event there will be no FBT.
The FBT calculation method described above is known as the ‘actual value method’. There are also two other methods that you may use to calculate FBT for entertainment (including Christmas parties): the ‘50/50’ split and the ‘12 week register’ method.
Using the 50/50 method, half of the total value of food, drink and entertainment provided to employees, associates and third parties is taxable.
Using the 12 week register method, a company must keep details of the proportion of food, drink and entertainment costs that were provided to employees and their associates and the FBT will be calculated accordingly. The 12 week period must be kept for a representative period (not an unusually quiet social period).
Whatever your company Christmas plans are, a little forward-thinking now can save you a lot come next end of financial year.
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To get advice on how to avoid an FBT hangover and advice on FBT in general, please contact our expert team here at Leenane Templeton.