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Christmas Parties & Gifts 2019

Year-end (and other) staff parties

Editor: With the well earned December/January holiday season on the way, many employers will
be planning to reward staff with a celebratory party or event. However, there are important issues to
consider, including the possible FBT and income tax implications of providing ‘entertainment’ (including
Christmas parties) to staff and clients.

FBT and ‘entertainment’

Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the ‘actual method’ or the ’50/50 method’, rather than the ’12-week method’.

Using the actual method

Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients). Such expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT and not tax-deductible.

Using the 50/50 method

Rather than apportion meal entertainment expenditure on the basis of actual attendance by employees, etc., many employers choose to use the more simple 50/50 method.

Under this method (irrespective of where the party is held or who attends) 50% of the total expenditure is subject to FBT and 50% is tax-deductible.

However, the following traps must be considered:

    • even if the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT;
    • the minor benefits exemption* cannot apply; and
    • the general taxi travel exemption (for travel to or from the employer’s premises) also cannot apply.

(*) Minor benefit exemption

The minor benefits exemption provides an exemption from FBT for most benefits of ‘less than $300’ that are provided to employees and their associates (e.g., family) on an infrequent and irregular basis.

The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and a gift) are not added together when applying this $300 threshold.

However, entertainment expenditure that is FBTexempt is also not deductible.

Editor: ‘Less than’ $300 means no more than $299.99! A $300 gift to an employee will be caught
for FBT, whereas a $299 gift may be exempt.

Example: Christmas party

An employer holds a Christmas party for its employees and their spouses – 40 attendees in all.
The cost of food and drink per person is $250 and no other benefits are provided.

If the actual method is used:

  • For all 40 employees and their spouses – no FBT is payable (i.e., by applying for the minor benefits exemption), however, the party expenditure is not tax-deductible.

If the 50/50 method is used:

  • The total expenditure is $10,000, so $5,000 (i.e., 50%) is liable to FBT and tax-deductible.

Christmas gifts

Editor: With the holiday season approaching, many employers and businesses want to reward
their staff and loyal clients/customers/suppliers. Again, it is important to understand how gifts to
staff and clients, etc., are handled ‘tax-wise’

Gifts that are not considered to be entertainment

These generally include a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers or a pen set, etc.

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

  • gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible; and
  • gifts to clients, suppliers, etc. – no FBT, and tax-deductible.

Gifts that are considered to be entertainment These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

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

  • gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible (unless they are exempt from FBT); and
  • gifts to clients, suppliers, etc. – no FBT and not tax-deductible.

Non-entertainment gifts at functions

Editor: What if a Christmas party is held at a restaurant at a cost of less than $300 for each
person attending, and employees are given a gift or a gift voucher (for their spouse) to the value of
$150?

The actual method used for meal entertainment Under the actual method no FBT is payable, because the cost of each separate benefit (being the expenditure on the Christmas party and the gift respectively) is less than $300 (i.e., the benefits are not aggregated).

No deduction is allowed for the food and drinks expenditure, but the cost of each gift is tax-deductible.

50/50 method used for meal entertainment Where the 50/50 method is adopted:

  • 50% of the total cost of food and drink is liable to FBT and tax-deductible; and

in relation to the gifts:

  • the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and
  • as the gifts are not entertainment, the cost is tax-deductible.

Editor: We understand that this can all be somewhat bewildering, so if you would like a little help, just
contact our office.

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