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CPA Australia has reminded tax agents to be wary of business clients’ risk of incurring FBT liability as the festive season begins to kick off.
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Tax agents warned on business clients’ FBT liability
24 November 2021
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As the Christmas party season nears closer, the professional accounting body said it is calling on tax agents to remind their business clients about FBT liability, noting the heightened risks this time of year traditionally brings.
“After the year that’s been, some bosses may wish to treat their employees to a bigger than usual Christmas party or gift as a way of saying thank you. Without wanting to sound like the Christmas grinch, it’s worth reminding your business clients that their generosity could create a tax liability,” Elinor Kasapidis, senior manager tax policy at CPA Australia, said.
“Parties and gifts are considered a benefit of employees that are not part of their salary, therefore, above certain thresholds they are captured by the FBT rules. The FBT implications of Christmas parties is a recurring problem and each year some bosses get burned.”
“Factors such as where the food and drinks are served, who the guests are, and how much is spent will determine if there are FBT implications.”
Ms Kasapidis explained businesses should follow three key rules to avoid incurring FBT.
1. Stay below the minor benefit threshold of $300 (FBT exempt benefits)
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2. Hold celebrations on business premises (exempt property benefits)
3. Only invite current employees or keep the costs for associates under $300
“The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits. It also applies to associates who attend an event, such as employees’ family members,” Ms Kasapidis added.
“Even though they may foster good workplace relations, Christmas parties and gifts are not a business expense. Businesses can’t claim a tax deduction for them if they are not subject to FBT.”
“If the cost of the party per head or gifts exceed the minor benefits exemption amount of $300, they will be subject to FBT and a deduction can be claimed. Costs that are exempt from FBT under the minor benefits and exempt property benefits can’t be claimed as a deduction.”
As with all tax matters, Ms Kasapidis noted accurate record-keeping is essential, especially if the business is claiming an exemption from FBT.
“Some bosses choose to give their employees a cash bonus at this time of year. These must be treated like salary and taxed accordingly, and also as ordinary times earnings for superannuation purposes,” she concluded.
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