The hidden Christmas tax – Fringe Benefits Tax

As Christmas is fast approaching, we must consider the possible tax implications of spreading Christmas cheer. When it comes to celebrations and generosity, the ATO isn’t nearly as merry as the man with the beard in the red suit!

One of the most common taxes that may apply is Fringe Benefits Tax.

The hidden Christmas tax – Fringe Benefits Tax

Fringe Benefits Tax is a tax on certain non-cash employee benefits you provided to employees, and their family or associates. The benefit may be in addition to, or part of, their salary or wages.

Fringe Benefits Tax is currently applied at a rate of 47% (for the 2022-23 FBT year) to the ‘grossed-up’ taxable value of benefits paid to an employee or their associates.

To assess if Fringe Benefits Tax is applicable to employers, we need to ask ourselves, is the expense considered entertainment or a gift?

Generally, the Christmas party thrown for employees and their associates is considered entertainment.

Gifts, however, can be classified into one of two categories;

  • Entertainment (e.g.: sporting events, theatre tickets, meals and accommodation vouchers), and
  • Non-entertainment (e.g.: flowers, wine, hampers and non-entertainment gift vouchers such as supermarket vouchers).

Entertainment incurred for employees is not tax deductible unless FBT applies.

Non-entertainment gifts on the other hand, are tax deductible — whether or not FBT applies.

However, it’s not all doom and gloom, there are some instances where such expenses may be exempt, the main categories are;

Exempt property benefits

The costs of food and drink associated with Christmas parties may be exempt from FBT if they are provided on a working day, on an employer’s business premises and consumed by current employees. The property benefit is not available to associates of employees.

Exempt minor benefits

The provision of a Christmas party to an employee may be considered a minor benefit and possibly exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.

Gifts provided to employees at a Christmas party

The provision of a Christmas gift to an employee may be a minor benefit that is an exempt benefit when the value of the gift is less than $300.

Here to Help

Fringe benefits can be confusing and if you’re not careful you may end up paying more tax than required. If you are confused, don’t worry, our accountants are here to help you! Get in touch with us to not only stay on the ATO’s good side but to ensure that your end of year celebrations are a fond memory and not one that has unexpected tax implications.