As the festive season is almost upon us, it is timely to consider the Fringe Benefits Tax (FBT) challenges on entertainment so that there are no financial hangovers when coming to complete your FBT return in April next year.
FBT is a tax applied to employers for providing non-cash benefits to an employee (or their associate, such as a partner). Currently the tax rate for FBT is 47% of the cost of the entertainment, however there are exceptions, so Christmas isn’t ruined just yet!
Certain non-cash benefits may not be subject to FBT. The following are exempt from FBT for taxpaying organisations:
For tax-exempt body entertainment fringe benefits, the minor benefit exemption is only available in the following circumstances:
Under this method, the costs of the Christmas party (and every other meal entertainment instance during the FBT year) are totalled and 50% of these costs will be subject to FBT. Generally, there are no exemptions available. This includes the 3 exemptions noted above, no access to the minor benefit exemption for the meal entertainment, no access to the on-premises exemption and no access to the taxi travel exemption.
Employers will require documentation to determine the number of recipients and who the recipients are that attended the Christmas party. Employers should maintain an attendance register or equivalent document to identify the attendees at the function. Employers cannot apply the minor benefit exemption if the recipient of the meal entertainment is not identified. This documentation is required for each entertainment function and event that has been held during the FBT year, which identifies each person who received the meal entertainment.
If an entertainer such as a band or DJ is hired for the Christmas party then these costs are considered recreational expenditure, rather than meal entertainment. For these types of costs, the minor benefit exemption may be considered.
Yes, the provision of a gift to employees at the Christmas party may be considered a minor benefit where the value of the gift Is less than $300 (GST inclusive). This can also apply to the employee’s associate, as a separate limit.
A gift provided to an employee of a tax-exempt body, will also be exempt from FBT where the minor benefit exemption is met.
Yes, the provision of a gift card or voucher to a restaurant will be considered an entertainment related fringe benefit. The expense will only be tax deductible when the amount is being subject to FBT, and no input tax credits can generally be claimed.
The cost of the Christmas party is income tax deductible, only to the extent that the costs are subject to FBT.
Under the actual method, if the minor benefit has been applied and therefore the benefits have been exempted from FBT, you cannot claim the costs as an income tax deduction. Similarly, FBT is not payable on the costs of entertaining clients and suppliers, and therefore these expenses are generally not deductible for income tax and the GST credits are generally not allowed. The tax deduction and GST input tax credits can only be claimed on the portion of the expenditure that has been subject to FBT.
Under the 50/50 method, generally 50% of the meal entertainment costs will be entitled to an income tax deduction and 50% of the GST credits will be entitled to be claimed.
Talk to your trusted Nexia Edwards Marshall advisor about how we can help you manage your tax affairs or if you have any questions about the matters discussed in this article.
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.