Tax Update – December

Client Update - December 2017

Christmas Party Planning

Christmas parties in general are categorised under ‘meal entertainment’ and FBT liabilities will arise for the employers, however there are some exceptions to this ruling.

There are some cases where providing food or drinks will not be recognised as meal entertainment, for example when the employer provides food and drinks on a working day at the employer’s premises, this will be considered as providing morning and after tea to employees and will not be considered as entertainment expenses and no FBT will arise.

Hence, it is important to consider that ‘meal entertainment’ provided at a Christmas function can be exempt from FBT under the ‘exempt property benefit’ rule and ‘minor benefit’ rule.

  1. Exempt property benefit rule - party held in the employer’s premises or provided externally
    If the Christmas party is held in the employer’s business premises on a working day where alcohol, food and drinks are provided to the employees, this benefit would be deemed as an exempt property benefit and will be free from FBT liability.

    However, if the party is held at a restaurant, the benefits provided will not be exempt from ‘exempt property benefit’ rule but may be exempt from ‘minor benefit’ rule.

  1. Minor benefit rule - Cost of the function per attendee (employees and/or associates)
    Minor benefits with a value of $300 (GST inclusive) or less, provided on an irregular basis and is not a reward for services will generally be exempt from FBT liabilities.

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.

It is not unusual to invite clients to your Christmas party, meal entertainment provided to clients will not be subject to FBT and will not be tax deductible, it will be treated as a standard entertainment expense.

Below are two scenarios that can illustrate the two rulings:

Scenario 1. A business having a Christmas party at the workplace on a working day that provides food, drinks and alcohol

 

Employee

Associates

Clients

Only current employees attend

No FBT

N/A

N/A

Employees and associates with $170 per attendee

No FBT, either property benefit rule or minor benefit rule applies, and not income tax deductible

No FBT, minor benefit rule applies, and not income tax deductible

N/A

Employees, associates and clients with $400 per attendee

No FBT, property benefit rule applies, and not income tax deductible

FBT will arise as the value greater than $300 have been provided

No FBT and no income tax deduction

 

Scenario 2. A business having a Christmas party at a restaurant on a working day that provides food, drinks and alcohol

 

Employee

Associates

Clients

Only current employees with $170 per attendee

No FBT, minor benefit rule applies, and not income tax deductible

N/A

N/A

Employees and associates with $200 per attendee

No FBT, minor benefit rule applies, and not income tax deductible

No FBT, minor benefit rule applies, and not income tax deductible

N/A

Employees, associates and clients with $400 per attendee

FBT will arise as the value greater than $300 have been provided

FBT will arise as the value greater than $300 have been provided

No FBT and not income tax deductible

 

Transportation to and from the function

If the transportation between the employee’s home and the function is provided by the employer and the function is held in the employer’s premises, the transportation expense would fall under exempt property benefits and will not be subject to FBT.

However, If the transportation between the employee’s home and the function is provided by the employer and the function is held externally, the transportation expense will not be exempt from ‘exempt property benefit’ rule but may be exempt from ‘minor benefit’ rule.

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