The FBT, Tax and GST Consquences to be aware of at Christmas
With the festive season just around the corner, it’s important to be aware of the tax implications of providing your employees with gifts, and throwing the end-of-year team function.
Depending on the type of gift or entertainment provided, the business will have different Fringe Benefits Tax (FBT), Tax and GST consequences.
A table is included below to help navigate these complex rules.
Entertainment vs Gifts – Potentially Different Tax Treatment
The Christmas party thrown for employees and their associates is considered entertainment.
Gifts, however, can fall into one of two categories,
- entertainment (eg: theatre tickets, sporting events, meal and accommodation vouchers), and
- non-entertainment (eg: hampers, flowers, wines, perfumes, non-entertainment gift vouchers).
Entertainment provided to employees is not tax deductible unless FBT applies (refer to table below).
Non-entertainment gifts on the other hand, are tax deductible – whether or not FBT applies.
$300 – An Important Number
An FBT exemption applies for benefits provided to employees LESS THAN $300 (including GST), as long as that benefit is “minor and infrequent”.
If the benefit provided is $300 OR MORE, then FBT will apply.
Employees/Associates & Contractors
Under FBT legislation, an employee is any person entitled to receive a salary or wages (including company directors). If a worker is classified as a contractor rather than an employee for PAYG purposes and the employer provides them with a gift, they will be considered a 3rd party (the same as clients) rather than an employee or associate.
What is Subject to FBT, What is Tax Deductible, and What Can GST be Claimed on?
The below table provides a summary of when FBT applies, what you can claim a tax deduction for, and what you can claim GST credits back on.
It assumes:
- Benefits provided less than $300 are minor and infrequent
- Business is not relying on the 50/50 method for FBT purposes
Tax Consequences of Gifts & Entertainment
The above is only a high-level summary of some complex tax consequences of throwing a Christmas party and giving gifts to your staff to thank them for their hard work throughout the year. If you have any questions or would like more specific information on the above, please contact us.
Disclaimer
The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls WA before making any decision to discuss your particular requirements or circumstances.
