From April 1 next year, the fringe benefits tax (FBT) exemption for minor benefits provided on an irregular basis will be increased from $100 (special $125 concession for Christmas or end of year parties) to $300 per employee.
“This year is the last year companies will be held to the current $125 limit for food, drinks, entertainment and related expenses per employee for the office Christmas party without incurring FBT,” Purdon said.
“As working within the FBT exemption works out to be 31% less expensive after tax, many organisations have planned their Christmas parties to avoid FBT.”
The $125 per head may sound generous until you consider it includes any transport to or from the party, gifts, decorations as well as the food and drink. Where partners are invited, the $125 must cover both the employee and their partner therefore making it only $65 per head, according to Purdon.
“The new rules may be a boon for the hospitality industry in 2007, as I expect many companies to promise a bigger bash next year,” he said.
Purdon clearly can hardly wait for bigger, better, tax-effective workplace parties.
“We’ve all heard of Christmas in July. Why not Christmas in April?” he said.
“By moving your party to April 2007, you will be able to take advantage of the new rules. In December, invitations could be given to employees to attend the April Christmas party and employees celebrate in December with sausages in bread.”
Tips for keeping more in the company stocking this Christmas
1. Keep the value of your party below $125 per employee and, as long as you don’t provide similar functions to your employees on a frequent and regular basis, it will be considered minor, infrequent and irregular – therefore not subject to FBT;
2. Be aware that there are certain conditions on how the cost must be broken up. Food and drink must be less than $100 per employee. Entertainment such as a DJ or band should not be more than $25 per employee and should be separately invoiced;
3. If providing transport to venues or home, these costs must also be factored into the $125;
4. Gifts given at the office Christmas party must be included in the $125. But presents given on another day will not be included in the $125 and are not likely to attract FBT if their value is below the $100 limit;
5. If considering a lavish Christmas party for your employees and/or top clients, then you may be better off hosting the party on your business premises on a working day, rather than at a restaurant or reception centre, as the costs as they relate to current employees (and clients) won’t attract FBT; and
6. If you give an employee a gift, such as a hamper or a bottle of wine to take home, then these can be a means to entertainment, not entertainment in itself. They may be exempt from FBT if they cost less than $100 and similar gifts have not been provided to the employee on a regular or frequent basis in the past. But if the employee opens the hamper or bottle and consumes the contents while still in the office, then you won’t receive an income tax deduction.
