Christmas cheer – with no FBT fear
With the year steadily making its way towards the festive period, businesses that are turning their attention to end-of-year celebrations will need to keep in mind the tax implications of throwing a Christmas party or handing over gifts to staff. Of course there’s nothing wrong with getting into the yuletide spirit, but business owners should make sure that while doing so, adverse tax outcomes are minimised.
As with any benefit that a business provides to staff that is outside the safe definition of “salary”, the question of whether it is a (taxable) fringe benefit or not will need to be addressed.
The Tax Office states that there are no different FBT rules that apply to Christmas entertainment, which can certainly come under the “minor benefits” umbrella. A minor benefit will be FBT-exempt where, broadly, the benefit is less than $300 per person and provided on an infrequent and irregular basis.
The FBT law allows however (perhaps getting into the spirit of the season) for the minor benefits threshold to apply to each benefit provided, not to a total value of “associated benefits”.
So if, as a generous employer, you put on a barbecue and hand out gifts, the meal and the gift are considered separately for FBT purposes. If each is less than $300, they are both generally FBT-free.
It is worth noting however that as such minor benefits are exempt from FBT, a business cannot then claim such expenses as a tax deduction, nor can claims be made for any goods and services tax (GST) credits that arise from making these “supplies”.
Where such costs do fall under the FBT regime, an employer’s liability is calculated at 46.5% of the grossed-up “taxable value” (or 47% after April 1, 2014, as an effect of the Medicare levy increase) of the benefit provided. Determining the value (for FBT liability calculations) of “entertainment” expenses can be through the “actual” expenses method (which is the default option) or a business can elect for one of two other options:
- The “50/50 split” method — where the taxable value is equal to half of the total food and drink expenditure relating to employees and their associates as well as third parties (eg. clients)
- The “12 week register” method — based on the percentage of food and drink entertainment through a register that is maintained for a representative period (in this case, as the name suggests, 12 weeks).
In a practical sense, the 50/50 split method can avoid additional administration, however the latter may be preferred where third party entertaining predominantly exceeds staff entertainment. Consult this office for the best option for your situation.
Note that expenditure in relation to meal entertainment is specifically excluded from having to be reported on an employee’s payment summary as a “reportable fringe benefit”.
Minimising your Christmas Party Fringe Benefits Tax
Structuring your Christmas celebrations in a way that makes sure you play Santa under the “minor benefits” banner will be well worthwhile.
The safest option for a business to steer clear of FBT liabilities would be to hold the Christmas party on the business premises on a working day, as providing meal entertainment to employees (and also bona fide clients) will be FBT free.
If partners and families of employees attend (known as “associates”) their FBT-free status is maintained if the benefit provided to each person is less than the minor benefits limit of $300.
And if the party is held off-premises, and everyone attends the work function at a pub or restaurant, the $300 limit applies to both employees and associates, with anything over subject to a liability based on a taxable value calculated by one of the methods referred to above.
If entertainment is held off-premises, here is an added cautionary tip regarding the FBT implications for travel expenses such as staff taking taxis. For an employer thinking of paying for this travel option, the important consideration in regard to this will be venue.
If the taxi travel is from home to an entertainment venue (that is not the workplace) and home again, the FBT law will include the cost of the ride as part of the entertainment and deem that it is to be included in the cost-per-head total (that is, it counts towards the $300 minor benefit limit).
But if the cab drives from home to a function held at the workplace, and/or from the workplace back to home after the festivities, the taxi fare is exempt from FBT.
Five tips to avoid common Fuel Tax Credit mistakes
The Tax Office has issued advice regarding fuel tax credits after it noticed some errors creeping into recent activity statements — also reminding businesses that rates can change regularly (and have done so recently) and that this can be a common source of the mistakes being made.
For those businesses eligible to claim fuel tax credits, remember as well that from July 1, 2013, rates used in calculations should be those that applied when the fuel was acquired. However one exception is fuel used in heavy vehicles travelling on a public road, where the correct rate will be that which was in effect at the beginning of the tax period covered by the business activity statement (BAS).
The following tips can help you get your claim right, but of course ask for our guidance to follow these tips correctly or should other questions arise.
Use the right rates.
As mentioned, fuel tax credit rates can change on a regular basis, so it’s important to make sure you use the correct rate. A good habit to get into would be to check up on the rates, or ask us to, before lodging each BAS.
Ensure that your fuel is the right sort.
Fuel type and usage will influence your eligibility, as there are some exceptions to what you can claim. A common mistake is to claim fuel tax credits for fuel you use for private purposes or for travelling on a public road in vehicles with a gross vehicle mass (GVM) of 4.5 tonnes or less.
Keep those records.
Make sure that accurate records are kept of fuel purchases and how that fuel is used in your business. This is even more important now that fuel tax credit rates are apt to change on a regular basis. Your records should show:
- the date the fuel was acquired
- the type of fuel you acquired
- the quantity of fuel
- how you apportioned the fuel for different activities, and
- the business activities you use it in, such as if it is for on-road or off-road activities.
Do your sums and check them.
Make sure you use the quantity of fuel when calculating your fuel tax credits. The Tax Office said a common mistake is claiming fuel tax credits based on the cost of the fuel instead of the quantity of fuel multiplied by the relevant rate.
Work out your fuel tax credits using this formula:
Quantity of eligible fuel x Correct fuel tax credit rate = Fuel tax credits
Write this amount, in whole dollars, at label 7D on your BAS (and it’s a good idea to keep records of your calculations).
Read over your contracts.
The wording of contracts that involve supplying fuel can affect who can claim credits. If a contract has not been reviewed for some time, check that provisions dealing with fuel supply or use reflect the current regime — or have us read over your contracts for you.
Source: Taxpayers Australia Inc