As the festive period approaches and many people embark on some well-earned time off, businesses across the country get their party-thinking hats on to celebrate and reflect on the year passed.
Festive celebrations are vital in sustaining employee morale and fostering a sense of giving back. Sounds pretty good, right? Here’s the catch.
The Australian Taxation Office released seasonal reminders of fringe benefits tax (FBT) compliance to prevent businesses from racking up unaccounted tax on entertainment during this period.
Know where you stand throughout the festive months with our trusty guide on how the FBT could impact you.
What Do Festive Party Planners Need to Know?
The ATO offers an exemption of $300 for the cost of food, drink, and entertainment. However, this minor tax benefit only applies through a stringent set of rules.
Firstly, the FBT threshold applies to the cost of food and drink during on-premise gatherings for current employees. Parties that take place off business premises or involve associates, such as partners or clients, don’t incur FBT, provided the cost for each person is less than $300.
While $300 per person may be sufficient for some festivities, more expansive teams might find it challenging to keep the costs down due to the inflation rate.
The ATO set the $300 limit in 2007. Since then, inflation has risen 2.38% every year since 2007, suggesting that a threshold of $450 better aligns with consumer price indexes.
That aside, it can take just a $10 difference to tip your business over the limit, incurring a considerable unexpected tax bill.
Should Your Business Limit Festive Spending?
Ultimately, the amount you spend on festivities is completely down to your budget and business size. Your safest bet is providing on-site entertainment on a weekday to avoid unexpected costs.
If that’s not possible, getting to grips with the ATO’s reminder before booking event resources is the best thing you can do to keep that tax-induced hangover at bay.
For instance, you must consider the prices of gifts, accommodation, venue hire, food, drinks, taxi bills, and tickets for entertainment as a whole for all guests. This ensures that the total amount doesn’t exceed $300 per person.
Is Charged FBT Deductible?
Charged FBT is deductible with income tax. You cannot claim deductions on food and drink provided if FBT didn’t apply. Ensure you record all proof of payment towards refreshments, accommodation, and travel for any guests to ensure the ATO can accept your deductibles.
Want to Enter the Festive Period Stress-Free?
We’re a close-knit team at Advisory One, so we understand the importance of uniting at the end of the year to reflect on your achievements.
Our tax, accounting, and business advisory services connect you to reliable accountants who can help you navigate FBT alongside income and GST obligations efficiently. Start a conversation by contacting us today.