With the Christmas season approaching, many employers will be on the lookout for gifts or events to reward their employees for their work over the past 12 months.
It is important that when doing this you are considering the Fringe Benefits Tax (FBT) implications. FBT is a tax paid by employers on certain benefits they provide to their employees or their employees’ family or other associates. A ‘fringe benefit’ is considered by the Australian Taxation Office (ATO) to be a payment to an employee other than salary and wages.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. Employers are required to self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return.
Whilst it’s unlikely that you can completely avoid the tax, there are some strategies you can use to minimise the tax you will be required to pay on benefits provided to employees this holiday season.
While there is no specific ‘entertainment fringe benefit’ category, a fringe benefit may arise from providing employees or their associates with benefits such as:
These benefits are subject to FBT if they are considered for entertainment, as opposed to work-related.
As employers often reward their employees with end of year Christmas events, which are considered by the ATO to be entertainment, you will likely be required to pay FBT on these benefits.
You should keep a record of the number of employees or their associates receiving each kind of benefit you are providing. This will ensure you have an accurate cost value of the benefits and will not be paying unnecessary FBT.
If the benefits or event is infrequent and costs below $300 per person, the benefit may be considered a ‘minor benefit’ and you may be eligible for an FBT exemption.
Any gifts provided by an employer to an employee or their associate is considered a fringe benefit. This includes gifts such as:
You may be able to minimise the FBT payable on these type of gifts by ensuring it is not a reoccurring or frequent event. For example, providing a gift card to employees each month is too frequent for FBT and will be subject to tax.
If the costs for each gift are below $300, they may be considered a ‘minor benefit’ and be exempt from FBT.
The general rule for travel is that you can claim deductions for travel expenses if you or your employee are travelling for business purposes. Any type of travel that is not work-related is considered private and increases your private use percentage, therefore is subject to FBT.
FBT may apply if you pay for or reimburse your employee for any non-work related travel expenses. You will also be liable for FBT if your employee extends their travel for private purposes and you reimburse them for these private costs.
A Christmas party is considered a private event, therefore any travel done in a company vehicle to a Christmas party is subject to FBT.
You may be able to minimise your FBT liability by limiting the use of company vehicles by employees over the Christmas break by keeping them on site and ensuring employees do not have access to the keys or vehicles during this time.
If you have any questions regarding fringe benefits tax, or wondering if your business activities this Christmas season will be subject to the tax, please contact us on 03 5443 0344 or email firstname.lastname@example.org