With the holiday season upon us once more, many organisations are planning social events to celebrate the year that was and to reward their team for their efforts throughout the year.
Whilst I like a good party as much as the next person, I think it is important that organisations are aware of a few things that impact on the planning of their social events.
Fringe Benefits Tax
Entertainment provided to employees is a Fringe Benefit. Unless an exemption can be applied, the end of year bash can wind up costing the employer much more than anticipated when it comes time to calculate the annual Fringe Benefits Tax liability.
The most common exemption used is the Minor Benefits Exemption. Broadly, this exemption excludes benefits costing less than $300 (per person) that are provided infrequently. However, please keep in mind that the Minor Benefits Exemption is actually very complex and may not be able to be applied to every employee in every instance.
Also, the Minor Benefits Exemption cannot be applied to meal entertainment where the "50/50 method" is used in completing the Fringe Benefits Tax Return. It is also unlikely to be available to not-for-profit employers.
Where an exemption cannot be applied, it is prudent to understand how the Fringe Benefits Tax liability will be calculated so that:
- The Fringe Benefits Tax liability can be budgeted for; and
- The correct records can be maintained to allow for calculation of the Fringe Benefits Tax liability in the most advantageous way.
Income Tax & GST
Division 32 of the Income Tax Assessment Act 1997 specifically makes the cost of providing entertainment non-tax deductible. This is the case regardless of whether those attending are the business owners, staff, clients or suppliers. The only exception is so much of the entertainment's cost that the employer will pay Fringe Benefits Tax on.
Also, to the extent that entertainment expenses are non-deductible, the GST included in those expenses will not be able to be claimed.
The non-deductibility of entertainment expenses and the inability to claim the GST is an often forgotten cost that should be considered when setting the budget for the event.
Whilst the end of year bash is a time to socialise and have a bit of fun, it cannot be forgotten that the employer remains responsible for the health and wellbeing of employees.
As such, organisers should ensure that health and safety considerations are addressed in planning the event. After all, you don't want to start the new year dealing with the aftermath of an incident at the end of year bash.
Sky Accountants wish to take this opportunity to wish you a safe and happy festive season.
If you have any questions in relation to this blog post, please get in touch. Otherwise, we look forward to seeing you in 2016!
Note: Our offices will be closed from 5pm Wednesday 23 December until 9am Monday 11 January 2016.