It is that time of year, again!
As Christmas approaches, so do the invitations to the many parties; and with the parties come the gifts you’re obliged to buy. You will probably be buying for family and friends, but, what about your employees? Will you buy them a gift or throw a party for them? Have you considered the tax impact of either of these expenses? What is gift tax?
There are 3 taxes you should consider:
- Income Tax to determine if the costs are deductible or not;
- Fringe Benefits Tax (FBT) which is payable at 47%; and
- Goods and Services Tax (GST) for claiming the GST credits.
A simple way to look at entertainment expenses is that they are not deductible and no GST can be claimed UNLESS Fringe Benefits Tax is paid on them.
‘Non-entertainment’ gifts (e.g. a bottle of wine) are treated differently to ‘entertainment’ gifts (e.g. holidays, tickets to a show or sporting event).
For ‘entertainment’ gifts, if the amount you spend is less than $300 per employee (including GST), the expense will be exempt from FBT. However, no tax deduction or GST may be claimed. A fringe benefit that has a value of $300 or less is called a ‘Minor FBT exempt benefit.’ Once the amount goes over $300 – that is when it becomes subject to FBT but you can claim a tax deduction and the GST credits on the expense.
The other main criteria of minor FBT exempt benefits is that the benefit is provided infrequently and irregularly.
‘Non entertainment’ gifts are exempt from FBT if less than $300 per employee (including GST) and a tax deduction can be claimed as well as any GST credits. Once ‘non-entertainment’ gifts exceed $300, FBT is payable. However, you continue to be able to claim a tax deduction on the full amount and the GST credits.
Because the provision of a party is deemed to be ‘entertainment’, under tax law, it is, generally, not tax deductible.
The rules for FBT and Income Tax change depending on where the party is being held.
If the party is held on work premises there is no FBT implication for employees as the benefit is an exempt property benefit. If family or associates of employees attend and the cost is less than $300 per head (including GST), the minor benefit exemption applies. As soon as the value provided to associates or family increases above $300, FBT will apply to the benefit provided to the associates.
If the party is being held offsite, perhaps at a restaurant or bar, the minor benefit exemption applies to all staff and associates or family attending if the cost is less than $300 per head (including GST). Once it goes over $300 a taxable fringe benefit arises for all attendees.
Further, there is no FBT payable on the cost for entertaining suppliers. But a tax deduction cannot be claimed. Parties are only tax deductible and GST credits able to be claimed to the extent FBT is being paid on them.
You should always seek advice from a specialist tax adviser before lodging you returns. If you have any questions regarding employees gifts and parties, what you can and can’t do, get in touch on 1800 376 376 or request a free initial consultation.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.