Splashy Christmas party planned? Don’t forget fringe benefits tax, SMEs advised

Small- and medium-sized enterprises planning a splashy Christmas bash have been warned – a big end-of-year bash at a swish venue with partners invited could leave you with a dreaded fringe benefits tax burden.

With the Government trying to boost revenue to reach its return-to-budget promise, Sean Urquhart, tax partner at chartered accounting firm Nexia Court & Co, says businesses can avoid FBT by having their party:

• on work premises,
• during work hours,
• with only current staff members, and
• keeping the total cost per head under $300.

“If an employer doesn’t want to be hit with fringe benefits tax, hold the Christmas party on premises, with staff only,” Urquhart says.

But for the bulk of the companies who want to have a party off-site, he says keep to that $300 maximum, and remember that includes the cost of gifts to staff members.

“Three hundred dollars is still pretty good, you can get a good Christmas party out of that,” Urquhart says.

If you invite clients to your party, another issue to consider is whether to use the 50/50 split method to calculate a potential FBT burden. Under tax laws, 50% of all entertainment costs are subject to FBT – and that 50% is tax deductible.

But choosing this method is only appropriate for some businesses.

“If your only spend during the year for entertainment is the Christmas party, you wouldn’t want to use 50/50,” Urquhart says.

“If you’re an employer that does a lot of entertaining, then 50/50 is there, so you don’t have to work out what percentage is staff and what percentage is clients.”

Urquhart own firm is going to a nice restaurant in Sydney, figuring after a tight couple of years, a splurge was in order.