Almost every business has an end-of-year function and/or Christmas event. You have to be careful when hosting these types of functions because Fringe Benefits Tax has a way of wedging itself between your budget and your plans. So how can you minimise the FBT on your next function and what are some of the rules regarding entertainment and food that you may have to consider?
Fringe Benefits Tax
This is a tax employers pay on certain benefits they provide to their employees, employees’ family or their associates. Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided. The FBT year runs from 1 April to 31 March.
If you are providing food and beverages to your current employees, whilst in the confines of your own business premises, you are exempt from FBT on these items. These costs, however, will not be tax deductible and no GST tax credits can be claimed.
Make sure you know who you are providing to because whilst food and beverage costs associated with employees are exempt, there is no exemption when providing to associates on your premises (for example, employee’s spouse). Whilst these costs are typically subject to FBT (per head), there are a couple of benefits: these costs will be deductible for income tax purposes and input tax credits for any GST paid can be claimed.
Should the cost of the function’s food and beverage be below $300 ‘per head’, minor benefits exemption may apply and FBT will not be payable. In this case, no income tax deductions or GST credits will be available.
Finally, if food and drink provided on business premises is provided to non-employees (such as clients), no FBT is payable. These costs will also be non-deductible for tax purposes and no GST imputation taxation credits are available.
When hosting a function at an off-site venue (such as a restaurant), any costs incurred for employees and associates are subject to FBT. These costs include venue hire, entertainment, food, drink and refreshments. These costs are also tax-deductible for income tax purposes and GST credits can be claimed. However, just like on-site functions, if the costs of food and drink ‘per head’ is below $300, FBT may not apply, costs will not be deductible for income tax purposes and GST credits are not available.
Generosity may also come back to bite you in the realm of FBT. If your gifts are $300 or more per employee, you will be subject to FBT on those gifts. These expenses will not be tax deductible and you will be unable to claim GST credits.
If providing gifts to clients, no FBT applies. A tax deduction and GST credits are available for such gifts as whisky, wine, hampers etc., however, no tax deduction and no GST credits can be claimed for such gifts as tickets to theatre, movie or sporting event.
If you have any questions regarding Christmas benefits provided to employees, associates or clients and the potential fringe benefits tax liability, please don’t hesitate to contact us on (07) 3174 5010.