For the first time, this Christmas employers will be able to provide $2399.92 in benefits for a family of four ($1199.96 food and $1199.96 gifts) instead of the previous $99.99 in total, allowing this year’s Christmas parties and gifts to be more lavish than ever.
Changes in fringe benefits tax (FBT) legislation have seen an increase of $200 for the benefits provided to employees on an infrequent and irregular basis that will attract FBT.
Until now, the Australian Tax Office had the view that when entertaining an employee and his or her family at a Christmas party, only the first $99.99 of expenses for food, drinks and presents for the family group would be exempt.
But the ATO now accepts that the exemption applies to benefits provided to each person and to each benefit, KPMG Tax partner Andrew Purdon said.
That means each member of the family can be provided with food and drink to the value of less than $300, and each member of the family can receive a gift costing less than $300 without the employer incurring an FBT liability.
In the past, a lot of employers kept their spending under the FBT threshold, and those at the top end of town that did spend a bit more to thank their staff for their hard work during the year really paid for it, according to Purdon.
“Throw away the chops and sausages, bring on the lobster and champagne – employers can now provide an upmarket Christmas party and gifts without the FBT,” he said.
“This is a serious saving. Let’s remember FBT is 46.5 percent of the grossed up taxable value of the benefit, which means the FBT can add another 96 percent of the cost of providing the benefit.”
However, businesses should note there are a couple of provisos, Purdon warned.
“The ATO has not provided guidance on how many times is considered frequent and regular, so businesses need to be careful they are not caught out by having too many Christmas parties or similar events,” he said.
“It’s also important to note that the gift, providing it is not entertainment in itself – like tickets to a concert – will be a deductible expense to the employer, whilst the food and drink will be considered entertainment and not tax deductible unless subject to FBT."
