The annual Christmas party could cost your business a lot more than anticipated!
Beware of FBT this festive season.
“Smart Company” and “Not so Smart Company” invited their employees to their respective annual Christmas parties held off business premises.
Both used an external event management provider. In both instances, transport to the venue from the office was organised for the employees.
The respective Christmas parties were each attended by 100 employees and both companies were invoiced a total of $31,000.
| Smart Company | Not so Smart Company | |
| Tax invoice supplied by the event management provider with a breakdown of costs inclusive of GST | Tax invoice supplied by the event management provider with the total cost amount inclusive of GST | |
| Food & Drinks $20,000
Entertainment $5,000 Transport to the venue from the office $2,000 Management fee charged by event manager $4,000 |
Total cost of Christmas Party $31,000 |
|
| The management fee charged by the event management company is not considered to be a benefit provided to the employees and is not included in the taxable value. Consequently, the cost per head of the Christmas Party works out to be $270 (i.e. ($20,000 + $5,000 + $2,000)/100). | As Not So Smart Company was not provided with a breakdown of costs for the Christmas Party, the total invoiced amount becomes the taxable value for FBT purposes. Accordingly, the cost per person is $310. | |
| As the cost per person is under $300 and the benefit is provided once a year, this benefit qualifies for the minor, infrequent and irregular exemption, and will not attract FBT. | As the cost per person is greater than $300, the minor benefit exemption does not apply, and the benefit is subject to FBT in full. | |
| Total Costs | $31,000 | $31,000 |
| Costs subject to FBT | $27,000 | $31,000 |
| Number of employees | 100 | 100 |
| Cost per person | $270 | $310 |
| FBT | $0 | $30,309 |
| Total cost to the business | $31,000 | $61,309 |
The Takeaway? Ensure you get a invoice with a breakdown of costs, and the per head total is under $299 per employee!
