These scenarios apply to commercial businesses. There are different scenarios for income tax exempt bodies.
Christmas parties and gifts
If your business holds a Christmas party:
- on a working day, on your business premises, and only for your current employees, you don’t pay fringe benefits tax (FBT) for the food and drink
- off your business premises, or the party includes associates of employees (such as their partners), you don't pay FBT if the party is a minor benefit – that is, the cost for each person is less than $300 and it would be considered unreasonable to treat it as a fringe benefit
- that includes clients, you don't pay FBT for the costs relating to the clients.
If you give your employees a Christmas gift, you don't pay FBT if the value of the gift is less than $300 per person and it would be considered unreasonable to treat it as a fringe benefit.
If the Christmas party is not subject to FBT, you can't claim income tax deductions for the cost of the party.
Example: Christmas party on business premises
A company holds a Christmas lunch on its business premises on a working day.
- Employees, their partners and clients attend.
- The company provides food and drink, and taxi travel home.
- The cost per head is $125.
Entertainment is being provided
A party for employees, associates and clients is entertainment, because the purpose of the function is for the people attending to enjoy themselves.
Employees – no FBT, exemption applies
The employer doesn't pay FBT for the:
- food and drink for employees, because it is provided and consumed on a working day on the business premises
- taxi travel, because there is a specific FBT exemption for taxi travel directly to or from the workplace.
Associates – no FBT, exemption applies
The employer doesn't pay FBT for the food, drink and taxi travel provided to the employees' partners (associates), because it is a minor benefit – that is, it has a value of less than $300 and it would be unreasonable to treat it as a fringe benefit.
Clients – no FBT
There is no FBT on benefits provided to clients.
Income tax and GST credits
The employer can't claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates or clients.
End of exampleGym membership
Example: gym membership
A conveyancing firm pays for a one-year gym membership for the company's director and each employee. The cost is $480 per person.
Entertainment is being provided
The gym membership is recreation entertainment.
Employees – FBT applies
FBT applies to the gym memberships for the employees. The minor benefits exemption doesn't apply, because the cost of the gym membership is $300 or more.
Director – FBT applies
The director is an employee of the company. Therefore FBT applies to the gym membership for the director.
Income tax and GST credits
The employer can claim:
- an income tax deduction and GST credits for the cost of the gym memberships
- an income tax deduction for the FBT paid.
Holiday
Example: holiday given as reward
A computer manufacturer offers a reward to employees of a retail computer store.
- The retailer agrees that the manufacturer can offer the reward to its employees.
- If an employee sells 200 computers in a month, they will receive a holiday consisting of 2 nights' accommodation at the beach and 2 tickets to an aquarium.
- The total value of each holiday package is $600.
Entertainment is being provided
- The holiday and tickets to the aquarium are recreation entertainment.
Employees – FBT applies
- FBT applies to the accommodation and tickets given to the employees who meet the sales target. The minor benefits exemption doesn't apply, because the value of the holiday package is $300 or more.
FBT liability – retailer
- The retailer, as the employer, is liable to pay the FBT as the benefits are being provided under an agreement with the manufacturer.
Income tax and GST credits
- The retailer can claim an income tax deduction for the FBT they pay.
- The manufacturer can claim an income tax deduction and GST credits for the cost of purchasing the accommodation and tickets.
Golf day
Example: golf day for employees, associates and clients
Paul, an employee, takes several clients and his partner to a corporate golf day paid for by his employer.
- The event is not held on a working day.
- Paul's employer gives him taxi vouchers to go from his home to pick up his clients and take them back after the event.
- The total cost is $320 per person.
Entertainment is being provided
The golf day is recreation entertainment. It is a social event and the purpose is for people to enjoy themselves.
Employees – FBT applies
FBT applies to the food, drink and taxi travel provided to Paul.
- The minor benefit exemption doesn't apply because the cost per person is $300 or more.
- The taxi travel exemption doesn't apply because Paul's trip did not begin or end at the workplace.
Associates – FBT applies
FBT applies to the food, drink and taxi travel provided to Paul's partner.
Clients – no FBT
There is no FBT on the food, drink, and taxi travel provided to clients.
Income tax and GST credits
The employer:
- can claim an income tax deduction and GST credits for the cost of providing the fringe benefits to the employee and his associate
- can claim an income tax deduction for any FBT paid
- can't claim an income tax deduction or GST credits for the entertainment provided to the clients.
Afternoon tea
Example: celebration afternoon tea on business premises
Anjelica is getting married. To celebrate, her company hosts an informal event on the business premises with drinks and finger food, and invites Anjelica's associates, work colleagues and clients. The cost is $25 per person.
Entertainment is being provided
The informal event is a social event and is therefore entertainment.
Employees – no FBT, exemption applies
Food and drink is exempt from FBT when consumed by employees on business premises on a working day.
Associates – no FBT, exemption applies
The food and drink provided to Anjelica's associates is exempt from FBT because it is a minor benefit – that is, it cost less than $300 per employee and it would be considered unreasonable to treat the benefit as a fringe benefit.
Clients – no FBT
There is no FBT on benefits provided to clients.
Income tax and GST credits
The employer can't claim an income tax deduction or GST credits for food or drink provided to the employees, their associates or clients.
End of exampleSeminars
The 'otherwise deductible' rule may apply to food or drink provided at seminars.
This means you (as the employer) do not pay FBT on an expense your employee could have claimed as a deduction, had they paid for it themselves.
The otherwise deductible rule works like this:
- If the food or drink at a seminar does not amount to entertainment
- then the registration fee would have been deductible in full and the employer does not pay FBT.
- If the food or drink at a seminar does amount to entertainment, and
- is reasonably incidental to the employee attending a seminar that goes for at least 4 hours – the registration fee is deductible and the employer does not pay FBT
- is not reasonably incidental to the employee attending a seminar that goes for at least 4 hours – only that proportion of the registration fee that does not relate to the food or drink would have been deductible, and the employer is liable to pay FBT on the remainder.
Meaning of 'seminar'
A seminar is:
- any training session, including a conference, convention, lecture, meeting, speech, question and answer session or educational course
- a planning day
- at which employees discuss general policy issues relevant to the management of your business
- conducted at an external premises available for conferences, training or seminars
- not a business meeting, where the main purpose of the meeting is to give or receive information, or discuss matters relating to the organisation
- not a marketing presentation, where the main purpose is to promote a business (or prospective business) or its products and services.
Meaning of 'reasonably incidental'
Food or drink is reasonably incidental to a seminar if it is:
- provided for sustenance because of the duration, time of day or location of the seminar
- provided immediately before, during or immediately following working sessions of the seminar
- available to all participants.
Duration of at least 4 hours
For the purposes of the otherwise deductible rule, the seminar must go for at least 4 hours.
The 4-hour period does not include any part of the seminar that occurs during a meal, or any breaks during the seminar for meals, rest or recreation.
Example: business planning day
An insurance company organises a planning day for its managers at a conference centre.
The company provides morning and afternoon tea and a 3-course lunch (excluding alcohol) at a cost of $125 per head.
Entertainment
The morning and afternoon tea are light meals and not considered entertainment.
The 3-course lunch would be elaborate and therefore considered to be entertainment, even though it is work related.
Employees – no FBT, exemption applies
The company doesn't pay FBT for the seminar, including the 3-course lunch, because it is a minor benefit – that is, it has a value of less than $300 and it would be considered unreasonable to treat it as a fringe benefit.
Income tax and GST credits
The lunch is entertainment and is exempt from FBT under the minor benefits exemption. Therefore the employer can't claim an income tax deduction or GST credits for the lunch.
The employer can claim a deduction for the morning and afternoon teas, which are not entertainment. The employer will need to determine how much of the $125 cost is attributable to the morning and afternoon teas.
End of example