By Moore Stephens Australia
As the Spring racing carnival is upon us, and with the December/January break on the way, many employers and businesses will be planning to reward staff with a celebratory party or event.
However, an important issue for our clients to consider is the possible FBT and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients.
Under the Tax Act, employers must choose how they calculate their FBT entertainment liability and most use either the actual method or the 50/50 method.
Under the actual method, entertainment is normally split up between employees (and their family) and non-employees (e.g., clients/suppliers).
Expenditure on employees is liable to FBT and deductible. Expenditure on non-employees is not liable to FBT, and is not tax deductible.
Using the 50/50 method instead?
Rather than apportion entertainment expenditure between staff, associates and business clients, etc., many employers choose to use the more simple 50/50 method.
Under this method, (irrespective of where the party is held or who attends) – 50% of the total expenditure is subject to FBT and 50% is tax deductible.
However, the following traps must be considered:
- even if the function is held on the employer's premises – food and drink provided to employees is not exempt from FBT;
- the minor benefit exemption* cannot apply; and
- the taxi travel exemption cannot apply.
(*) Minor benefit exemption
The minor benefit exemption provides an exemption from FBT for benefits of 'less than $300' which are provided to employees (and their family/associates) and which are infrequent and irregular.
The Tax Office accepts that different benefits provided at (or about) the same time are not added together when applying this threshold.
Basically, this means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as the cost of each benefit is less than $300.
Editor: And that's 'less than' $300, i.e., no more than $299.99. A $300 gift to an employee will be caught for FBT, whereas a $299 gift is exempt.
Example: A Melbourne Cup party
An employer holds a Melbourne Cup party for its employees and their spouses.
The cost of food and drink per person is $250, and no other benefits are provided.
If the actual method is used:
- For employees attending on their own or with their spouse – no FBT is payable (i.e., the per head cost is less than $300) and no tax deduction will be allowed.
If the 50/50 method is used:
- 50% of the total expenditure is subject to FBT and is tax deductible.
Editor: The above is only a short explanation and while we have tried to simplify the rules, we understand that it can get complicated, so give us a call if you would like a hand.
ATO and GST compliance
The Tax Office says that GST cheats are more likely than ever before to be caught out this year, as it plans to increase its audits on GST refund claims by small businesses and investigate cases of serious evasion.
It will complete an extra 11,500 cases in 2011/12 investigating the systematic or deliberate under-reporting of GST and fraudulent GST refund claims.
Last financial year 28 people were prosecuted for more than $17 million worth of GST-related fraud offences.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.
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