Ho Ho Ho….Merry Taxmas! How to avoid the Tax Office Grinch this festive season! Part 2
December 18th – by Angela Lehmann
Last blog I covered the potential tax treatments for cash bonuses and vouchers or gifts. I gave you a little to think about for the Christmas part and as promised this blog is the ham of what you need to know for potential tax trip ups from a Christmas Party.
Remember, that there are key considerations that need to be considered around Christmas parties:
- Was transport (i.e. taxi) provided as a means of getting to/from the party?
- Was there entertainment provided at the party?
- Was the party held on business premises or was a venue hired?
- Were partners and clients also invited?
- What was the total per-head cost of the party?
Let’s look at each of these components in a little more detail:
1. Meal Entertainment
Entertainment by way of food of drink is generally considered meal entertainment for FBT.
Meal entertainment can be valued in a number of ways, with the two common methods being (1) 50/50 method or (2) the actual method.
The 50/50 method was designed to be an ‘easy’ method for employers and effectively has a built-in concession. Regardless of the ratio of employees, associates or clients, the employer can choose to deem half of the total meal entertainment as subject to FBT.
This valuation method is particularly beneficial if the employer:
- Does not maintain sufficient records on the number and type of attendees
- Has a greater portion of employee/associate entertainment than client entertainment as a general rule
The actual method in comparison requires that the employer maintain detailed records of attendees and classify them accordingly. This enables the employer to capture all employees/associates (subject to FBT) vs clients (exempt from FBT).
Though the actual method sounds much more onerous, there are a number of additional benefits to using this valuation method, the main two being possible FBT exemptions:
- Employer can access the minor benefits exemption where the meal entertainment meets the eligibility criteria (discussed above); and
- Employer can access the property exemption which can exempt meal entertainment that is provided on the employers premises in certain circumstances
2. Taxi rides and transportation
Taxi travel that either starts or ends at the employer’s workplace may be eligible for the Taxi Travel expenses exemption.
3. Band and/or other entertainment
Where a band, comedian or other performer are hired to perform at the Christmas Party, this is considered recreational entertainment (may even include a visit from Santa).
This type of entertainment must be valued at the actual method, where the cost is clearly distinguishable from the meal, venue hire etc.
4. Venue hire
What many employers are not aware of is that where you hire a venue for your exclusive use and the cost can be distinguished from the costs of the meals and entertainment, this would give rise to an Entertainment Facility Leasing Expense (EFLE) for FBT purposes.
The benefit of being able to dissect the EFLE from the other party costs is that you can choose which FBT valuation method to apply, regardless of the method you applied for the associated meal entertainment.
5. Gifts (handed out at Christmas Party)
If you used the actual method to value the meal entertainment and applied the minor benefits exemption to the per-head cost, you can apply the minor benefits exemption again to any gifts (up to $300) that are distributed at the Christmas party.
This is because the meal and the gift are deemed to be two separate benefits by the ATO.
GST is always particularly complicated with meal entertainment:
- Claiming GST on meal entertainment is limited to the extent that the cost of providing the entertainment is a fringe benefit
- This means that if the entertainment is exempt or is the 50% that is non-FBT under the 50/50 method, you cannot claim GST on those amounts
To sum up!
The ATO has thought through all possible aspects of the silly season. It’s not all bad news though so get festive, break out the shortbread, mince pies and office parties. Hopefully this has given you some insight of what to think about from a tax perspective for your business.
Enjoy your festive season and here’s to a successful and not too taxing (sorry…) 2016!
1. Cash bonuses
The ATO discusses it’s stance on cash Christmas bonuses at Example 23 (paragraphs 171-173) in SGR 2009/2 (below): Cash Bonuses
2. Minor Benefits Exemption
Minor Benefits Exemptions
3. Meal Entertainment
ATO Tax Ruling (TR97/17) on meal entertainment with a simple look up table at paragraph 25: Meal Entertainment
4. Property Exemptions
5. ATO Guidance on FBT and Christmas parties
FBT & Christmas Parties
This discussion is based on the following assumptions being made:
• The employer is not a tax-exempt employer
• The employer is subject to payroll tax (i.e. has exceeded the relevant state threshold)
• The employer is registered for GST.