05/12/2007
Spreading the Christmas Cheer
With Christmas fast approaching, businesses of all sizes are preparing for the end of year celebration - the office Christmas party.
In the past, Christmas parties have meant a great deal of FBT liability for business owners, however, recent changes to the fringe benefit tax (FBT) legislation will assist business owners with their FBT liability.
Changes in the FBT legislation have seen an increase to $300 of benefits that employees can receive (on an infrequent and irregular basis) without incurring FBT.
Until now, the Australian Tax Office (ATO) had the view that when entertaining an employee and their family at a Christmas party, only the first $100 of expenses for food, drinks and presents for the family group would be exempt from FBT.
But changes to FBT legislation have seen an increase of $200 for the benefits that employees can receive.
The ATO says this exemption applies to benefits provided to each person and to each benefit.
That means each member of the family can receive food and drink to the value of less than $300 and each member of the family can receive a gift costing less than $300 and the employer will not incur an FBT liability.
Overall, this Christmas, you will be able to provide $2399.92 in benefits for a family of four ($1199.96 food and $1199.96 gifts) instead of the previous $99.99 in total. This means your business could throw away the previous barbecue menu and provide a more lavish Christmas party and gifts without incurring the FBT.
The cost incurred by FBT in the past has been significant so a lot of employers kept their spending under the FBT threshold.
Those who chose to spend more on their end of year celebration were hit quite hard with FBT.
For example, FBT is 46.5 percent of the grossed up taxable value of a benefit, which means the FBT can add another 96 percent of the cost of providing a benefit.
In other words, the new legislation can save you and your business a significant amount of money; while still allowing you to have a great celebration.
Before you race off to order the champagne and caviar, however, there are provisos you should keep in mind.
Your business must be careful not to have too many Christmas celebrations or similar events as the new exemptions will only apply to 'nfrequent or irregular events'. The ATO has not provided guidance on how many times is considered frequent and regular, so your business needs to be mindful of this.
It's also important to note that a gift - providing it's not entertainment in itself (like tickets to a concert) - will be a deductible expense to the employer while the food and drink will be considered entertainment and not tax deductible unless subject to FBT.
Changes to the FBT legislation mean your business can enjoy a more lavish end of year Christmas party and not get hit in the hip pocket (to the same extent) the morning after.
So long as you remain mindful of the FBT requirements and don't have too many celebrations, you can enjoy a fantastic end of year celebration and see out the year in style.
Dominic Pelligana is a Partner with KPMG Middle Market Advisory
