Business Wealth Developers Pty Ltd

Spring carnival, year-end and other staff parties

As the Spring racing carnival is upon us, and with the December/January break on the way, many employers and businesses will be planning to reward staff with a celebratory party or event. 

However, an important issue for our clients to consider is the possible FBT and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients. 

Under the Tax Act, employers must choose how they calculate their FBT entertainment liability and most use either the actual method or the 50/50 method.

Under the actual method, entertainment is normally split up between employees (and their family) and non-employees (e.g., clients/suppliers).

Expenditure on employees is liable to FBT and deductible.  Expenditure on non-employees is not liable to FBT, and is not tax deductible.

Located in Warriewood on the Northern Beaches BWD Accountants specialise in small business accounting and taxation services.

Using the 50/50 method instead?

Rather than apportion entertainment expenditure between staff, associates and business clients, etc., many employers choose to use the more simple 50/50 method.

Under this method, (irrespective of where the party is held or who attends) – 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* cannot apply; and

• the taxi travel exemption cannot apply.

(*) Minor benefit exemption

The minor benefit exemption provides an exemption from FBT for benefits of 'less than $300' which are provided to employees (and their family/associates) and which are infrequent and irregular.

The Tax Office accepts that different benefits provided at (or about) the same time are not added together when applying this threshold.

Basically, this means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as the cost of each benefit is less than $300.

Editor:  And that's 'less than' $300, i.e., no more than $299.99.  A $300 gift to an employee will be caught for FBT, whereas a $299 gift is exempt.

Example: A Melbourne Cup party

An employer holds a Melbourne Cup party for its employees and their spouses. 

The cost of food and drink per person is $250, and no other benefits are provided. 

If the actual method is used: 

• For employees attending on their own or with their spouse – no FBT is payable (i.e., the per head cost is less than $300) and no tax deduction will be allowed.

If the 50/50 method is used:

• 50% of the total expenditure is subject to FBT and is tax deductible.

If you need accounting and taxation services contact BWD Accountants located in Warriewood, Pittwater on the Northern Beaches.

BWD Accountants

Quattro Building Suite 1201, 4 Daydream Street

Warriewood, Pittwater on the Northern Beaches

Return to top