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H&R Block says many companies trip over the tax unawares as the ATO issues a seasonal reminder.
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Festive work parties must dance through an FBT ‘minefield’
01 November 2023
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10 minute read
Any business planning a lavish Christmas party must contend with an FBT minefield and a 16-year-old spending limit unless it is held on the premises, within working hours and involves only current employees.
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In a festive message ahead of the party season, the ATO has reminded party planners that the FBT minor benefit exemption of $300 applies outside a narrow range of strict conditions.
The $300 threshold for FBT applies to current staff as soon as the party moves off-site but bust the limit for partners – or “associates” – regardless of venue and the costs quickly multiply.
H&R Block director of tax communications Mark Chapman said any businesses that tripped over the complex FBT rules could face a hefty tax bill.
“Provided the cost per head is less than $300 there’s no FBT because that's the minor benefits exemption,” he said.
“That exemption limit applies to each individual who comes along. However, if you spend more than $300 than per head, then the whole lot is subject to FBT, not just the excess over $300.”
“It can be very expensive. So the difference between spending $290 per head and $310 per head isn't just $20. You're looking at a quite substantial tax bill if that's the case.”
Set in 2007, the $300 minor benefit exemption “might have been quite a tidy sum once upon a time, but these days it probably isn’t” and would keep being whittled away by inflation since legislation was required to change it.
A quick calculation shows that figure would be almost $450 if it had kept pace with CPI.
The rules get more complicated once clients, income tax deductions and GST credits are factored in, and Mr Chapman said many businesses probably tripped over the tax unawares.
“We don't really have any idea but anecdotally, it must be lots of companies given that the ATO has a real focus on this and they put the messaging out so soon.
“Because it really is a bit of a minefield in terms of will it be subject to FBT at all? Does the minor benefits exemption apply? Is FBT going to be an issue if you can bring partners or clients?
“All of these issues in total make it a bit of a minefield really. I suspect that there are lots of companies who do actually get it wrong.”
He said the only surefire way to avoid FBT was to spend less than $300 per head or hold the event on a working day and on the business premises.
In its recent reminder, the ATO advised businesses to acquaint themselves with the rules before hiring a restaurant of booking an event.
“It's important to get on top of how FBT works before you provide perks and extras, otherwise you may end up with an unexpected FBT liability,” the ATO said.
It clarified that FBT was not payable on the party costs for invited clients, but the $300 threshold applied to “associates of employees (such as their partners)” and to gifts.
Another factor in the overall price was the potential for income tax deductions for the cost of the party, which were claimable only if FBT applied.
The ATO advised celebrating businesses – regardless of guests, venue or cost per head – to keep records of all spending for the post-Christmas tax hangover.
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