The holiday season is a time for giving and celebrating, and many businesses look forward to rewarding their employees for their hard work throughout the year. Whether you’re planning a Christmas party, handing out gifts or organising another special festive perk for your employees, it’s important to keep one not-so-festive factor in mind – Fringe Benefits Tax (FBT).

So, how can you ensure your Christmas cheer doesn’t turn into a tax headache? Let’s break down how FBT applies to common Christmas benefits and how you can avoid any tax surprises this holiday season.

What is Fringe Benefits Tax (FBT)?

FBT is a tax that employers pay on certain benefits they provide to employees or their families as part of their employment. While salaries and wages aren’t subject to FBT, extra perks like Christmas gifts, parties, entertainment and even transport home from the office party often are.

During the Christmas and New Year period, businesses often reward their employees with special perks. However, these well-intentioned rewards can sometimes lead to extra tax costs. The good news? With careful planning, you can manage your FBT liability and keep the Christmas cheer alive without an unexpected tax bill.

Common Christmas Benefits That Can Trigger FBT

When providing Christmas perks, it’s essential to know how FBT applies to each one. Here’s a closer look at the most common Christmas benefits that may attract FBT:

1. Christmas Parties

Christmas parties are a highlight of the holiday season but they are typically considered meal entertainment under FBT rules. To calculate the FBT payable on meal entertainment, there are three methods businesses can choose from:

  • Actual Method: Calculates FBT based on the actual cost per person.
  • 50/50 Method: FBT applies to 50% of all meal entertainment expenses, whether on or off business premises.
  • 12-Week Register Method: Uses a sample 12-week period to calculate an average FBT rate for meal entertainment expenses.

If your business uses the 50/50 method or 12-week register method to calculate FBT on meal entertainment, all costs associated with your Christmas party may be subject to FBT, even if it’s held on business premises. However, if you’re using the actual method, certain exemptions can apply, like the minor benefits exemption and the property benefits exemption, which could reduce or eliminate FBT on meal entertainment expenses.

  • On-Site Christmas Party: If you host a party on your business premises during a working day for current employees and use the actual method to calculate FBT, you’re in luck—there’s generally no FBT on food and drink consumed on-site, thanks to the property benefits exemption. However, if associates (like family members of employees) attend and their cost exceeds $300, FBT may apply.
  • Off-Site Christmas Party: If you hold the party off-site at a venue like a restaurant, FBT can apply unless the total cost per person is under $300. In this case, and if you’re using the actual method, you may be able to apply the minor benefits exemption, meaning no FBT is payable.

2. Christmas Gifts

Gifts are a great way to show appreciation for your team but FBT rules differ depending on the type of gift you give.

  • Non-Entertainment Gifts: These include hampers, wine, gift vouchers and other items that aren’t classified as entertainment. If the cost of the gift is under $300 per person, it qualifies for the minor benefits exemption (when using the actual method) so you won’t need to pay FBT. Non-entertainment gifts are also tax-deductible and you can claim GST credits.
  • Entertainment Gifts: Gifts such as concert tickets, sporting event tickets or theatre passes are considered entertainment. While these can also be exempt from FBT if their cost is under $300, they aren’t tax-deductible, and you can’t claim GST credits.

3. Transport (Taxis or Ubers)

If you provide transport for employees to and from your Christmas party, be careful about how FBT applies:

  • For On-Site Parties: If the party is held at your business premises, the cost of transporting employees (like paying for taxis) is exempt from FBT.
  • For Off-Site Parties: If the event is off-site, transport costs count as part of the total entertainment benefit. If the total cost (party + transport) exceeds $300 per person and you’re using the actual method, FBT may apply.

4. Corporate Events and Recreation Days

Hosting a corporate golf day, river cruise, or other recreation event as a reward for your employees? These count as entertainment benefits and may be subject to FBT if the costs exceed $300 per person.

The Minor Benefits Exemption

The minor benefits exemption is a key rule that can help businesses reduce their FBT liability. This exemption applies when the benefit:

  1. Costs less than $300 per person, and
  2. Is provided infrequently and irregularly.

This exemption applies to most Christmas parties (if the actual method for calculating meal FBT is used) and gifts, as long as the total cost per person is under the threshold. For example, if your Christmas party costs $250 per person and you give each employee a $100 gift, you can apply the exemption to both the party and the gift separately if each is below the $300 threshold.

It’s important to keep accurate records to ensure you’re applying the exemption correctly. FBT can be a complex area of tax, and if you’re unsure whether your Christmas perks qualify for the exemption, it’s always a good idea to consult with your accountant to avoid any unexpected liabilities.

How to Plan Festive Benefits Without the FBT Headache

Here are some practical tips to help you stay compliant while still rewarding your employees during the festive season:

  1. Track Your Costs: Make sure to calculate the total cost per person (including food, drinks, and transport) to determine whether you can apply the minor benefits exemption and manage FBT obligations effectively.
  2. Keep Detailed Records: Whether it’s a party or a gift, make sure you have clear records of costs and who received the benefits. This will be crucial for tax time.
  3. Non-Entertainment Gifts: When in doubt, non-entertainment gifts (like hampers or gift vouchers) can often be FBT-exempt and may qualify as tax-deductible.
  4. Consult an Expert: Given the complexities of FBT, it’s wise to consult a tax accountant to ensure you’re applying the rules correctly and managing your tax position.

Christmas is a time for giving, and your employees deserve to be rewarded. But failing to plan for FBT can result in unexpected tax costs. By understanding how FBT applies to Christmas benefits and knowing which calculation method you’re using, you can ensure that your festive cheer doesn’t come with a hefty tax bill.

Contact us

Calculate Your FBT with Our Christmas Calculator

Want to make sure your Christmas benefits don’t attract unnecessary FBT? Use our free FBT Calculator to check if your holiday perks are compliant.