As the Spring racing carnival is up and running, and with the Christmas Holidays just around the corner, many businesses will be planning their annual Melbourne Cup function and Christmas event.
Employers will sometimes provide events for staff and an important aspect for businesses to consider is the possible FBT and income tax implications of providing ‘entertainment’ to staff and clients.
As a business owner you will need to distinguish whether the events are classified as entertainment and require you to pay fringe benefits tax. Events can include:
- providing entertainment by way of food, drink or recreation;
- providing accommodation or travel in connection with such entertainment; or
- paying or reimbursing expenses incurred in obtaining something covered by the above.
Examples of supplying entertainment are:
- business lunches and drinks, staff social functions such as a Melbourne Cup lunch, Christmas parties and Farewells ;
- tickets to sporting or other events, sightseeing tours or holidays; and
- accommodation and travel in connection with entertaining clients and/or employees over a weekend at a tourist resort.
Under the Tax Act, employers must choose how they calculate their FBT entertainment liability and most use either the actual method or the 50/50 method.
Under the actual method, entertainment is normally split up between employees and non-employees such as clients and or suppliers.
Expenditure on employees and their associates are liable for FBT and therefore deductible. Expenditure on non-employees is not liable to FBT, and is not tax deductible.
If using the Actual method you also make available the minor benefit exemption.
Rather than allocate entertainment expenditure between staff, associates and business clients, etc., many employers choose to use the more simple 50/50 method.
Under this method, 50% of the total expenditure is subject to FBT and 50% is tax deductible.
However, the following must be considered:
- if the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT;
- the minor benefit exemption cannot apply; and
- the taxi travel exemption cannot apply.
Which method is best for you?
When determining which entertainment valuation method is best for your organisation, factors to consider are:
- who you provide entertainment to (employees, associates or clients)
- how often you provide entertainment
- which method results in the lowest FBT liability
- administration costs of each method for your organisation.
If you require professional advice regarding Entertainment Fringe Benefits Tax and need to determine the best method to use, contact the friendly team at Hooper Accountants to on (07) 4637 9363 Toowoomba Office or (07) 4693 3148 Pittsworth Office.