We wish you a FBT-free Christmas

We wish you a FBT-free Christmas

Christmas may be a time of giving but be careful not to gift too much lest you accidentally step into a Fringe Benefits Tax trap!

What’s Fringe Benefits Tax?

Fringe Benefits Tax refers to the tax paid by employers on certain benefits they provide to their employees or their employees’ families or other associates. FBT is separate from income tax and is calculated on the taxable value of the fringe benefit.

Ultimatly, the specific conditions and concessions involved in FBT can vary with minute details and can get quite confusing. To help with this Tailored Accounts has outlined some general tips on how you might want to navigate the FBT tightrope during the holiday period.

1) Watch your Budget

There is a strict limit on how much you can spend before you get slapped with an FBT – No more than $300 (GST included).

Fortunately, gifts and parties are counted separately. So, if you give your employee a gift worth up to $300 and throw a party for employees where the cost per head is under $300, both will be exempt from the tax. Even if the combined total exceeds $300.

But, keep in mind that this benefit exemption isn’t cumulative, the amount unspent in prior years doesn’t carry forward. 

2) Host the Party at your Office

Food and drinks associated with Christmas parties will be exempt from FBT if: 

  • Provided to employees (Not associates!);
  • On a working day; 
  • On business premises;
  • And if consumed by current employees.
 

Tip: Capture the data at the entry point! 

When hosting a party, be sure to keep track of how many people are staff vs how many are clients. These are the things you need to know when lodging your taxes.

3) Entertainment or Gift?

There is a distinct difference between taking a client out to lunch and giving them a gift. 

Going out for lunch with a client? That’s entertainment.

But if you give them a bottle of wine (and you don’t sit down and open it immediately to drink it with them), then that’s just a gift. 

Keep this distinction clear when calculating your FBT liability.

4) Rides Home are Conditional

Taxis to help your employees get home safely sounds like a great idea, but are unfortunately an FBT grey area. 

FBT doesn’t apply if the party is held in the workplace and the taxi fare is to go home. However, if you’ve booked a venue then a trip from work to the party may be exempt but the second trip home might not be.

Recordkeeping

Be sure to keep all records relating to the fringe benefits you provide, including how you worked out the taxable value of benefits.

This should include documents related to:

  • The amount you spend on each employee;
  • When and where the event is held;
  • The value and type of gifts you provide; and
  • Who attends – is it just employees, or are partners, clients or suppliers also invited?

As an employer trying to be kind to your employees, these tax rules can seem like an overly complicated deterrent to your festive planning. But we assure you, asking the right questions early on can be essential to saving yourself a tax headache in the new year.

Feel free to give us a call or email if you’d like to confirm if any of your Christmas activities may be liable to FBT.

Source: Tailored Tax

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