Did you enjoy the Christmas party in your company?
Entertainment expense constitutes a major part in Fringe Benefits Tax Act.
The first thing everyone needs to know is, the meals, entertainment, parties and gifts are not always tax deductible. There are very strict and complex rules about that.
Lets start with Christmas Parties, which was the number one topic throughout December.
There are two ways of dealing with those expenses: Actual method and 50/50 method.
If you threw a Christmas Party in your company, outside of the business premises, and the cost per head is less than $300.00, the total cost is exempt from fringe benefits tax, if you use the actual method. However, it is not tax deductible. So, there is no tax benefit.
If the cost per head is above $300, the actual method requires to separate the employees (and their associates) and non-employees costs first. And then the company pays fringe benefits tax for the employee’s part. The fringe benefits tax and the party cost are tax deductible. For the non-employees part, the clients and suppliers for example, there is no fringe benefits tax but this amount is not tax deductible.
If you chose 50/50 method, $300.00 threshold doesn’t apply, because people who use the 50/50 method usually do it because they don’t know the cost per head. In that case, you simply take 50% of the whole cost of the party and pay fringe benefits tax for that part. Again, the fringe benefits tax itself is tax deductible, and only the 50% of the party cost is tax deductible.
Gifts are a bit different.
There are gifts that are not considered to be entertainment, such as bottles of wine, flowers, pen sets, etc… If the individual cost of those gifts, to the employees and their associates, are less than $300.00, there is no fringe benefits tax for them. For the ones above $300.00, the business needs to calculate and pay fringe benefits tax. The cost of the gifts are tax deductible, in both cases.
However, gifts to the clients, suppliers, etc, are tax deductible without any fringe benefits tax consequence.
If the nature of gifts is in form of entertainment, it’s a different story. These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.
In that case, if the cost of each ticket (for employees and associates) is less than $300.00, there is no fringe benefits tax calculated and there is no income tax consequences either. However, if the cost is above $300.00, the business is liable for fringe benefits tax and the cost is tax deductible.
Those gifts for the clients, suppliers, etc, are not subject to fringe benefits tax and they are not tax deductible.
Complex isn’t it? Not finished yet.
If the Christmas party is organised in business premises, the cost of the food and drinks are tax deductible but it is subject to fringe benefits tax regardless of cost per head.
The fringe benefits tax is, in my opinion, is one of the most complex parts of the Australian taxation legislation. The details I explained above is only a small part of it.
If you need more information, please contact us.