Contact: Frank Klasic
Deloitte
Tax Partner
+61 (0) 9208 7514

Contact: Amanda Kennedy
Deloitte
Media & Communications Manager
+61 (0) 9208 7407

With Christmas just around the corner, employers should consider the tax effectiveness of their corporate entertainment and enjoy the increase of the minor fringe benefits threshold from $100 to $300 according to Deloitte Global Employer Services Partner Frank Klasic.

“With changes in the last year, employers can now spend up to $300 per employee which could result in more entertainment being exempt from fringe benefits tax (FBT),” Mr Klasic said.

“It is important that you recognise the FBT implications of any corporate entertainment because if you do your homework and plan appropriately then you can avoid unforseen cost blowouts.

“Generally for income tax purposes a Christmas party or function will be tax deductible if it is subject to FBT. And if it is not subject to FBT then it will not be deductible for income tax.

“Attendance at the year end Christmas party will almost always constitute entertainment and, as such, FBT can apply.

“In order to determine the FBT status of the function, you need to consider such things as the income tax status of the employer, where the function is held, who attends, what was provided, how much it costs and how similar functions are treated.

“There are also special GST restrictions on claiming input tax credits on entertainment costs which are sometimes overlooked by employers.”

Mr Klasic suggests that as a general rule employers should consider all entertainment subject to FBT unless an exemption can be found.

“In some cases a Christmas party for employees held on the work premises during a working day can be exempt from FBT. There are exceptions to this rule and employers should always check their own situation.

“Under new rules which have effect from 1 April 2007, if employers spend less than $300 per person on the provision of a fringe benefit, the whole amount can be exempt from FBT when certain conditions are satisfied,” Mr Klasic said.

“This exemption is typically applied at Christmas time when employers provide year end entertainment to employees.”

Based on a draft ruling issued by the Australian Taxation Office (ATO) in June this year, the $300 limit provides opportunities to treat end of year entertainment as exempt from FBT.

In previous years, the exemption limit was only $100 per employee.

Mr Klasic said the ATO’s draft ruling allows for the $300 limit to apply to both an employee and their spouse.

"This means you can have an entertainment event which costs $299 per head and no FBT would apply to either the employee or their spouse.”

Similarly often employers will provide gifts such as hampers to staff at a Christmas party event.

“The $300 limit would apply separately to both the entertainment costs and the hamper.

"This allows employers to spend up to $299 on each without attracting FBT.”

Mr Klasic noted that another trap to be mindful of is that recreational entertainment (such as an entry ticket to the Melbourne Cup) could also be reportable on employee Payment Summaries.

“This can catch some employees by surprise if they are not made aware of these implications.”