Nov 27, 2020 / News

Business Consulting / Taxation

FBT and Christmas parties

With the end of the year fast approaching, many businesses will already be planning Christmas parties for staff and clients, and may be even organising online gifts for employees. Therefore, employers should be aware of the tax consequences of hosting Christmas parties for their staff, whether virtual or in-person.

Christmas parties in 2020

Christmas parties will obviously be different this year. COVID-19 has meant that in order to socially distance, some businesses might well replace the usual annual physical event with a virtual one. Gifts are now more likely to be bought through online services.

Employers must pay fringe benefits tax (FBT) – at a rate of 47% – on the grossed-up taxable value when certain non-cash benefits are supplied to their employees or their associates (including past, future and current employees, and their spouses and children).

However, certain non-cash benefits will not be subject to FBT.  While the FBT law does not specifically deal with Christmas parties, the following types of benefits are exempt from FBT, and are particularly relevant when determining an employer’s FBT liability when hosting a Christmas party:

1. Minor and infrequent benefits valued at less than $300.  This is a catch-all exemption available for current employees and their associates for low-value benefits provided on an “infrequent” or “irregular” basis. 
2. Exempt property benefit (e.g. all Christmas party food and drink provided by the employer that is consumed by a current employee at a party, provided the party is held at the employer’s premises on a business day); and
3. Exempt transport benefits (e.g. a current employee’s employer pays for a taxi ride home if the Christmas party is held at the employer’s premises).

Minor benefits add up

The $300 minor and infrequent benefit exemption applies separately on a per-benefit basis (eg, the minor benefit exemption can apply if a present worth $250 is provided to an employee and another present worth $290 is provided to the employee’s spouse).  For many businesses, the annual Christmas party held outside of the employer’s premises, such as at a restaurant, would amount to less than $300 per person;

As you can see from the above, the amount of FBT payable can be influenced by:

• When the party will be held (i.e. for the minor and infrequent benefit exemption, the cost of the benefit provided must be less than $300 per head and not provided regularly or frequently);
• Where the party will be held (i.e. for the property fringe benefit exemption to apply, the food and drink must be provided and consumed by current employees on the employer’s premises on a business day);
• For whom the party will be held (i.e. the tax consequences are different depending on whether the benefits are provided to employees, their associates or clients).

Virtual settings

With COVID-19 pushing a lot of activities online, it can become a bit more complex. However, the above rules still apply to both virtual and in-person events. Just ensure all receipts and records are retained, for whatever type of event is being held or for those online gifts, to reduce the FBT liability.

Summary

This brief overview gives a broad outline of the application of the FBT law to Christmas time activities.  A variety of benefits may be supplied to employees at Christmas time with each containing their own valuation, deduction and exemption rules.

Please contact Raoul Stevenson or your Nexia Edwards Marshall Advisor if you would like to discuss any of the tax-effective benefits that may be supplied to employees at Christmas time or in certain situations, at any time.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.