With Christmas looming, many employers will be getting ready for their annual Christmas party, and thinking about what types of gifts to buy employees (including their families), clients, suppliers, etc.
However, an important issue to consider is the ATO ‘back flip’ on the $300 minor benefit exemption which can save employers. Under the new approach, the ATO now accepts that different benefits are not added together when applying the < $300 a threshold. As such, a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300!
Christmas gifts
These generally include, for example:
- a Christmas hamper, a bottle of whiskey, wine, etc.; and
- gift vouchers, a bottle of perfume,pen set, etc
Briefly, the general FBT and income tax separately to the $300 threshold; and consequences for these gifts are as follows:
- gifts to employees and family members FBT is payable (except where minor benefit exemption applies – refer below) and a deduction is allowed
- gifts to clients, suppliers, etc. – no FBT and a deduction is allowed
Gifts which ARE considered to be entertainment
- tickets to attend a theatre, live play, sporting event, movie or the like; and
- holiday airline ticket or admission ticket to an amusement centre.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
- Gifts to employees and family members – FBT is payable and a deduction is allowed” (except where minor benefit exemption applies – refer below).
- gifts to clients, suppliers, etc. – no FBT and no deduction.
The minor benefits exemption
Generally speaking, where the value of a Christmas gift provided to an employee or family member is less than $300, it will be exempt from FBT.
Surprisingly, for the purposes of the $300 minor benefit threshold, the following tips should be considered:
- where a gift is provided to both an employee and their family member (e.g., a spouse), the gifts are applied separately to the $300 threshold; and
- where a gift is associated with a Christmas party (e.g., it is provided at the party), each benefit (i.e., the gift and the party) is applied separately to the $300 threshold.
However, note that, if the minor benefit exemption applies to the provision of entertainment benefits to an employee, deduction can be claimed.
Christmas parties –
The general FBT and income tax consequences are briefly as follows:
Christmas party on employer’s premises
- Food and drink for current employees on a working day – no FBT and no deduction.
- Food and drink for family members – FBT is payable (except where minor benefit exemption applies – as above) and a deduction is allowed.
- Food and drink for clients, suppliers, etc. – no FBT and no deduction.
External Christmas party – restaurant, function centre or similar venue
- Food and drink for employees and family members:
where the cost of the function per guest (i.e., employees and spouses are not aggregated) is less than $300 – no FBT and no deduction.where the cost of the function per guest is $300 or more – FBT applies and a deduction is allowed. - Food and drink for clients, suppliers, etc. – no FBT and no deduction.
Thanks to NTAA for this summary.