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Taxation of Gifts and other Benefits for Hospitality Venues

taxation of gifts
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Watch out for the Tax Man

With the festive season fast approaching and many Christmas functions being organised, the taxman is usually the last person you consider…with the result being that fringe benefits tax (FBT) is the largest cost of the event.

The provision of non-cash benefits to staff, such as gifts, food, drinks, entertainers, accommodation and tickets to events are regarded as fringe benefits by the Australian Taxation Office and taxed at the highest rate. The rules to determine whether taxable benefits are provided are complex and can lead to nasty surprises if not dealt with properly.

Some general concepts in FBT to be aware of are:

  • Provision of benefits which are minor and infrequent to employees and cost less than $300 per employee can be exempt from FBT.
  • Usually, the provision of meals to employees on a working day are generally exempt and not subject to FBT. However, if the meal becomes more than just sustenance and becomes entertainment, such as three course meal, it can be a taxable fringe benefit and if provided regularly would not be considered minor and infrequent, and therefore be taxable.
  • Meal entertainment benefits can be valued based on 50/50 basis or based on actual method of benefits provided. The choice of method can provide starkly different results from a tax perspective.
  • Long service awards or gifts to employees with greater than 15 years’ service are exempt up to a once only $1,000 threshold per employee with an increase of $100 per year thereafter. Unfortunately, if you exceed this threshold by only $1 the full amount is subject to FBT, in effect doubling the amount paid.
  • Care should be taken with entertainment gifts such as tickets to sporting events, movies, and theatre. Non entertainment gifts, which can be exempt include gift vouchers to stores, shops and retailers. Depending on how you value your meal entertainment you may be exposed to an FBT liability if you are not aware.

Hotels

  • The general concepts above apply to private entities and should be limited to $300 per employee to avoid the full amount being subject to FBT. Any exempt amount is not tax deductible nor are you entitled to any GST input tax credits.
  • Generally, due to meals provided to staff on a working day the 50/50 method is not beneficial to reduce the taxable value of benefits and if you provide entertainment benefits exceeding $300 per employee, expect to pay an equivalent amount in FBT as well.
  • You should consider paying any excess above $300 per employee as a salary bonus as if structured correctly will be taxed at the employee’s individual marginal rates of tax.

Registered Clubs

  • As Clubs are either exempt from income tax as a sporting club or pay tax only on non- member income, special rules apply to the calculation of taxable entertainment benefits.
  • Unlike private entities, clubs do not have access to the $300 minor benefit exemption for entertainment and any entertainment provided to employees will be taxable.
  • It is usually more FBT effective for Clubs to provide non-entertainment gifts to employees that satisfy the $300 minor benefit exemption.

In summary, this article is general information to provide some insight into the FBT complexities for hospitality venues and you should always obtain specific advice for your particular circumstances and take into consideration the underlying commercial strategy of providing benefits.

Contact us to seek advice and ensure that the tax man does not stifle Christmas or other significant social events in your venue.

For access to a great FBT calculator, download our app and view the tax calculators icon.

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