Tips for a less taxing work Christmas party: KPMG
Thursday, November 24, 2005
HOLDING your office Christmas party in-house may mean the photocopier and the stationery cupboard get an extra work out, but this will be outweighed by the savings on Fringe Benefits Tax (FBT), according to KPMG Tax partner, Andrew Purdon.
"When organising your office Christmas party, it pays to bear in mind ways to control your FBT and after-tax costs, otherwise you might discover you have an expensive hangover," Purdon said.
Christmas parties show that activities that attract FBT and are tax deductible are more expensive than those that are FBT-free and not tax-deductible.
"For example, if you are considering a lavish Christmas party for your employees or top clients, then you may be better off hosting the party on your business premises on a working day, rather than at a restaurant or reception centre, as the costs as they relate to current employees won't attract FBT," Purdon said.
If a $150 per head Christmas dinner was held on a Friday night (a working day of the employer) for 50 current employees and 50 clients, the after-tax cost would be $2694 lower on the employer's premises, according to Purdon.
The total upfront cost of both events would be $15,000. But the FBT of $7,745 on the restaurant party would not be offset by the GST input tax credit of $682 and the tax relief of $4369. This would lead to a total after-tax cost of $17,694 - $2694 more than the in-house party.
"In addition, any taxis your employees take home afterwards from the workplace may be FBT exempt," Purdon said.
Tips for keeping more in the company stocking this Christmas
Keep the value of your party below $125 per employee - as long as you don't regularly provide similar functions to your employees, then it will be considered minor, infrequent and irregular and therefore not subject to FBT.
Be aware that there are certain conditions on how the cost must be broken up. Food and drink must be less than $100 per employee and entertainment such as a DJ or band no more than $25 per employee and separately invoiced.
If you are providing transport to venues or taxis home, these costs must also be factored into the $125.
If you give your employees a gift at the office Christmas party, then it must be included in the $125. But if you give out presents on another day, then they are less likely to attract FBT if their value is below the $100 limit.
If you give an employee a gift, such as a bottle of wine to take home, then it can be a means to entertainment, not entertainment in itself, and may be exempt from FBT if it costs less than $100 and similar gifts have not been provided to the employee on a regular or frequent basis in the past. But if the employee opens the bottle and consumes the contents while still in the office, then you won't receive a deduction.