From office Christmas parties to thoughtful gifts, the Christmas season is an excellent way for employers to raise morale and give employees some much-needed break from the day-to-day grind of the office. However, when the spectre of the 47% Fringe Benefits Tax (FBT) implications is hovering over our heads, it can be challenging to get into a merry mood, especially as we celebrate the season again under a cloud of uncertainty due to the pandemic.
Luckily, the Australian Tax Office (ATO) has left wiggle room for employees and employers to enjoy the Yuletide season without fear of having to fork over exorbitant FBT to the ATO. For more insight, read on.
What is a Fringe Benefit
Before anything else, it’s essential to define what fringe benefits are.
At its core, fringe benefits are a type of payment employers give to their employees that do not come in the form of a salary. It’s a pretty broad definition which could include the following according to the ATO:
- allowing an employee to use a work car for private purposes
- giving an employee a discounted loan
- paying an employee’s gym membership
- providing entertainment by way of free tickets to concerts
- reimbursing an expense incurred by an employee, such as school fees
- giving benefits under a salary sacrifice arrangement with an employee.
For employers who provide these benefits to their employees, associates, or clients, it’s important then they’re liable to pay the 47% FBT rate based on the value of the benefits they provided. However, there are some exemptions that might be of use to your office Christmas revelry.
Since fringe benefits are not technically income, they’re calculated separately on the value of the fringe benefit provided. However, employers can claim income tax reduction and, if applicable, Goods and Services Tax (GST) credits for the items supplied.
How Can FBT Affect the Company’s Christmas Festivities?
Because of the broad definition of fringe benefit, the Fringe Benefits Tax may apply to Christmas parties and gifts. Food and beverage, party supplies, and the likes consumed during a Christmas party are also classified as fringe benefits.
So, if businesses aren’t careful, physical and even virtual Christmas parties may lead a business to incur huge FBT implications come tax time.
Are Christmas Presents Exempt from FBT?
Luckily, there are exemptions to the FBT that may help us all celebrate the season without worrying about taxes.
Minor benefits are usually exempt as long as they cost under $300 and are considered infrequent. Businesses, therefore, can typically give each of their employees up to $300 worth of Christmas presents without having to report it as a fringe benefit.
Gifts that employees need to increase productivity in the workplace are also exempt from FBT. Therefore, giving employees portable electronic devices such as laptops, smartphones, and tablets for Christmas wouldn’t require business owners to pay FBT on them. Other tools of the trade, such as computer software, protective clothing, are also applicable for the exemption.
Are Christmas Parties Considered Fringe Benefits?
The ATO generally considers food, drinks, and entertainment expenses to be fringe benefits and are, therefore, taxable items via FBT. However, the same exemptions apply as minor benefits here. As a result, employers can provide up to $300 worth of food, drinks, and entertainment per employee at a Christmas party that won’t fall under the FBT. However, further exemptions apply depending on set parameters.
An exempt property benefit, for example, can render a Christmas party exempt from FBT if it’s held on business premises and as long as only current employees are in attendance. However, if employee associates are also invited, there has to be a $180 limit per attendee for the party to be exempt from FBT.
On the other hand, if the event is to be held off business premises, a new set of rules is in place. For example, a Christmas party may only be FBT-exempt if the cost per employee in attendance is less than $195. If employees and their associates attend, on the other hand, the limit goes down to $180 for it to be FBT-exempt.
What are The Pertinent Dates Related to Fringe Benefits Tax?
Employers with FBT liability must file their returns from April 1st to March 31st. Payment, on the other hand, is due on May 21st.
Wrapping Things Up: FBT for the Christmas Season
For many businesses, the Christmas holidays are a season to recharge and get ready for the incoming New Year. Therefore, companies need to usher in the season with a festive spirit through a small Christmas party or giving gifts to their industrious employees.
Fortunately, FBT is not a hindrance for businesses that want to let employees enjoy the season. So, if you’re looking to make the most out of the holiday season, you must become well-versed in the FBT exemptions. This way, you can give your employees a much-needed lift during these troubling times.