With the January break on the way, many employers and businesses will be planning to reward staff with a celebratory party or event.
There are import issue to consider in regards to FBT and income tax
FBT and Entertainment
As am employer you can choose how to calculate any FBT on entertainment
• actual method’ or
• ’50/50 method’.
Actual Method
Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients and suppliers).
Expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT, and not tax deductible.
50/50 method
Rather than apportion entertainment expenditure on the basis of actual attendance by staff, etc., many employers choose to use the more simple 50/50 method.
Under this method of the total cost 50% of the total expenditure is subject to FBT and 50% is tax deductible.
However, the following traps must be considered:
• even if the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT;
• the minor benefit exemption of $300 or less cannot apply; and
• the general taxi travel exemption (for travel to or from the employer’s premises) cannot apply.
So how does it work in practice? Well let’s take an example
An employer holds a Christmas party for its employees and their spouses
The cost of food and drink per person is $250, and no other benefits are provided.
Under actual method
• For all 40 employees and their spouses – no FBT is payable (i.e., applying the minor benefit exemption), however, the expenditure is not tax deductible.
Under 50/50 method
• Expenditure is $10,000 and 50% (i.e., $5,000) is liableto FBT and tax deductible.
What about Xmas Gifts?
You may want to reward their staff and loyal clients/customers/suppliers with a gift. So how does that work?
Gifts which are notconsidered to be entertainment such as a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
• gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and
• gifts to clients, suppliers, etc. – no FBT, and tax deductible.
Gifts which areconsidered to be entertainment such as tickets to attend a theatre, live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
• gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and
• gifts to clients, suppliers, etc. – no FBT and not tax deductible.
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