Clements Dunne & Bell Melbourne

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Tax Issues of the Festive Season

As we enter December many employers will be hosting events and providing gifts to celebrate the festive season and the year that was.

However, employers need to be careful to manage the tax issues that can significantly increase the costs of providing Christmas cheer.

Following are some brief notes on common Fringe Benefits Tax, Income Tax and Goods & Services Tax issues that will result.

FRINGE BENEFITS TAX

Fringe Benefits Tax applies to non-monetary benefits provided to employees (and their family members) and is borne by the employer.  Fringe Benefits Tax issues will arise in the following circumstances:

  • Meals in restaurants, cafes, hotels, etc;
  • On-site functions (barbeques, drinks, etc);
  • Off-site functions (balls, cocktail parties, lawn bowls, etc); and
  • Christmas gifts.

Costs associated with any of the above such as taxi travel and accommodation can also get caught.

Fringe Benefits Tax is assessed at 46.5% on the “grossed up taxable value” of the benefit provided.  In most circumstances this will effectively double the cost of providing the benefit.  For example, the prima facie Fringe Benefits Tax on a benefit of $1,000 will generally be $960. 

As Fringe Benefits Tax can add significantly to the cost of providing the benefit, it is important that employers know where they stand before committing to the provision of the benefit.  This includes identifying whether the Fringe Benefits Tax liability can be reduced or eliminated.

Commonly, the minor & infrequent benefits exemption can be applied.  Under this exemption, benefits of up to $300 may be exempt.  Additionally, goods provided on a working day and in-house benefits can enjoy concessional treatment.

Employers should also be aware of the three methodologies for calculating the value of entertainment Fringe Benefits that are subject to tax.  These three methodologies can produce very different outcomes and each should be assessed to ensure that the least Fringe Benefits Tax is paid.

Lastly, not-for-profit organisations can often be endorsed by the Australian Taxation Office as Exempt or Rebatable Employers.  Status as an Exempt or Rebatable employer means that significantly less Fringe Benefits Tax will be payable and benefits can be provided in a highly tax effective manner.  If not already endorsed, we recommend that not-for-profit employers investigate their eligibility.

Naturally, we can assist in assessing and costing the Fringe Benefits Tax implications of planned expenditure.  We can also provide advice on the exemptions, including endorsement of not-for-profit employers.

INCOME TAX STATUS

Generally, the cost of entertainment provided to employees or other persons (suppliers or clients/customers) is not tax deductible. 

However, where that entertainment is a taxable Fringe Benefit on which tax has been paid then a deduction will be allowed.  The Fringe Benefits Tax itself is also tax deductible.

Exempt Fringe Benefits that consist of entertainment are not tax deductible.  For example, a restaurant meal that satisfies the minor benefits exemption referred to above. 

The after tax cost of providing entertainment varies depending on the employer’s legal structure.  As an example, the after tax cost of $1,000 of entertainment provided by a corporate employer will be $300 more than another form of benefit or remuneration.

GOODS & SERVICES TAX (GST)

GST input tax credits can only be claimed where expenditure is for a “creditable purpose”.  In essence, this means that where an employer incurs a non deductible entertainment expense, it will not be possible to claim a refund of any GST included in that expense.

For example, if a restaurant meal is Fringe Benefits Tax exempt under the minor benefits exemption, it will not be tax deductible (see above) and consequently no GST input tax credits can be claimed.

 


 

The festive season is a time of celebration and to wind down after a long year.  We urge all employers to consider the tax implications of their festive activities lest they wake up in the new year with a tax related hangover.

We also take this opportunity to remind all employers to consider and manage the Human Resources issues associated with Christmas functions.

If you have any specific questions regarding the above or your planned festive activities, please do not hesitate to contact your usual CDB adviser.