Taxation – Questions and Answers

Category: Fringe Benefits Tax (“FBT”)

Date of Issue: 30 November 2006

Date Last Modified: 1 July 2009

Question – Will an FBT liability arise on our Christmas Party?

Answer – Yes

All employee Christmas parties/functions will be subject to FBT regardless of where they are held (including functions held on campus and/or at Club Murdoch), as Murdoch University is a Tax Exempt body.

Taxation requirements specifically exclude a Tax Exempt body from utilising the minor benefit exemptions on entertainment expenditure under section 58P of the Fringe Benefits Taxation Act, unless the following limited conditions apply:

·          The entertainment benefit is valued at less than $100 and is incidental to the provision of entertainment to persons who are not employees or associates of employees; or

·          The entertainment benefit is valued at less than $100 and is provided on the premises of the employer and is provided to recognise a special achievement of the employee.

In this context, where entertainment in the form of Christmas parties, including the provision of drinks; finger food; meals etc is provided specifically for the purpose of employees and or associates, then the party will be subject to FBT at a grossed up rate of 102% on the GST inclusive price - chargeable on the number of employees and associates (ie spouses, partners etc).

There will not be FBT consequences of providing benefits to visitors (not being employees or associates).

Example 1:
OFPR holds Christmas drinks for 20 staff at Club Murdoch at a cost of $11 per head including GST. The GST inclusive cost of the function is $220. The grossed up FBT value is $224.40 ($220 multiplied by 102%).  Therefore, the total cost of the Christmas function is $444.40 [$220 (cost) plus $224.40 (FBT liability)].

Example 2:
OFPR holds Christmas drinks and nibbles in the Chancellery Common Room for 20 staff and 3 visitors at a cost of $11 per head including GST. The GST inclusive cost of the function is $253. The grossed up FBT value is $224.40 [$253 divided by 23 (total number of persons) multiplied by 20 (total number of employees and associates), multiplied by 102%]. Therefore, the total cost of the Christmas function is $477.40 [$253 (cost) plus $224.40 (FBT liability)].

Question – Will an FBT liability arise on our Christmas Gifts to Employees?

Answer – If the gift is valued over $100 or is entertainment in nature such as restaurant or cinema vouchers.

The applicability of FBT on gifts to employees depends on the type, frequency and value of the gift and associated benefits provided during the year. Christmas gifts can be excluded from FBT under a Minor Benefits exemption if:

·          The notional value of the gift is less than $100; and

·          The gift is not in the nature of entertainment; and

·          The gift is not considered principally in the nature of remuneration; and

·          It would be unreasonable to treat the minor benefit as a fringe benefit under Section 58P(1)(f) of the FBTAA. Examples of FBT exemptions under this category are:

o         Where the provision of minor benefits (less than $100) are not frequently provided during the year, but are confined to a few special occasions like Christmas; and
o         Where the total cumulative value of minor benefits provided is small. [Please note that the greater the cumulative value of minor benefits (for all employees), the more likely the Christmas gift will be subject to FBT].

In general, minor benefits can be considered as FBT free where the gifts are modest in value, and are confined to a few special occasions during the year, like Christmas, and they are not in the nature of entertainment or in the nature of remuneration. Examples include:

·          Perfume;

·          Flowers;

·          Gift basket (non-food related);

·          Bottles of wine or spirits (that are intended for consumption by the employees at home);

·          Food hampers/gift baskets (that are intended for consumption by the employees at home);

A gift that directly provides entertainment by way of food, drink or recreation is subject to FBT.  Examples of such gifts would include a holiday, tickets to sporting events, the theatre or cinema and the cost of a night out at a restaurant.

Example 1:
OFPR gives gifts of modest value to its staff once a year at Christmas. The Gifts consist of a bottle of wine or a gift basket (both consumable at employees home) to the value of $25. FBT will not be applicable, because the gifts are of modest value, are below $100, are provided infrequently, and are not in the nature of entertainment or remuneration.

Example 2:
OFPR gives gifts of modest value to its staff once a year at Christmas. The Gifts consist of cinema or restaurant vouchers to the value of $25. Although the gifts are of modest value, are below $100 and are provided infrequently, FBT will be applicable as the gifts are in the nature of entertainment. The grossed up FBT value per gift is $25.50 ($25 multiplied by 102%). Therefore, the total cost of the Christmas gift per person is $50.50 [$25 (cost) plus $25.50 (FBT liability)].

Example 3:
OFPR gives gifts of modest value to its staff four times a year. On each occasion, the Gifts consist of a bottle of wine or a gift basket (both consumable at home) to the value of $25. Although the gifts are of modest value, and are not in the nature of entertainment or remuneration, FBT will be applicable, as the gifts are provided frequently, and are cumulatively in excess of $100 minor benefit rule. The grossed up FBT value per gift is $25.50 ($25 multiplied by 102%). Therefore, the total cost of the Christmas gift per person is $50.50 [$25 (cost) plus $25.50 (FBT liability)].

Please contact Senior Taxation Accountant (ext 2378) or Group Financial Controller (ext 2164) if you have any queries or require clarification on Christmas parties and or Christmas gifts.