Is your business providing workplace entertainment?
As an employer, you’ve probably treated your employees to food, drink, gifts, or recreational activities from time to time. It’s a nice way to make your staff feel appreciated and valued, whilst boosting team morale. Whatever the context or reason for festivities (farewells, promotions, birthdays, Christmas, sales targets reached, product launches, and so on), there’s a couple of things you should know about when it comes to workplace entertainment.
When we talk about “providing entertainment”, there’s a couple of elements this extends to. Firstly, supplying entertainment through food, drink or recreation. Recreation is quite broad and could encompass hiring arcade games for the office, tickets to a music event, or treating your team to a round of mini-golf offsite. Entertainment costs also include accommodation and travel expenses, for example, if you hire a mini-bus to take your team to mini-golf.
What you need to know
If you provide events for your staff, you will need to know whether the events will be classified as entertainment and require you to pay fringe benefits tax (FBT). There are six steps involved in this process.
1. Determine whether food, drink or recreation is entertainment.
You need to consider four factors — why, what, when, and where. Each is a little ambiguous, and none of the factors on their own will determine if the food and drink provided is entertainment, but the first two questions for consideration are the most important. Read them in detail here.
2. Consider exempt benefits.
If you provide only exempt benefits, you will not have to pay FBT. Some minor benefits may be exempt from FBT; to determine whether the minor benefits exemption applies, you must determine whether the taxable value of the benefit is less than $300. If the taxable value is $300 or more, the FBT won’t apply. If it’s less than $300, you must determine whether it is unreasonable to treat the minor benefit as a fringe benefit. See ATO’s guide on how to do this.
3. Calculate the entertainment’s taxable value
The taxable value of food, drink or recreation, and any associated accommodation or travel, is the actual amount you pay for the benefit of the employee. There are three methods you can use to place a value on entertainment.
The first is the Actual Method, then there’s the 50-50 Split Method, and finally the 12-Week Method (read up on them here). When considering which one to use, think about:
- who you are entertaining (client, employees, or associates).
- how often you provide entertainment.
- which method provides the lowest FBT liability.
- the administrative costs of each method.
4. Reduce the payable FBT
Yes, it’s possible to reduce your FBT. In some cases, you can bring it right down to 0 and pay nothing. One of the easiest ways to do this is by providing employee benefits that are tax-deductible. This includes seminars related to the employees-role, such as training, lectures, educational courses, and more. Employee contributions are also a way to reduce FBT, as well as providing cash bonuses.
5. Keep records
You must keep clear records on entertainment provided throughout the year so that the taxable value of the fringe benefit can be calculated. You should record:
- where and when the entertainment was provided.
- who received the entertainment.
- how much the entertainment cost.
- the kind of entertainment provided (food, drink, recreation, travel, accommodation, etc.) — be specific.
6. Report on employees’ payment summaries
Have you provided fringe benefits with a total taxable value of more than $2,000 to an employee in an FBT year? You must report the grossed-up taxable value of the fringe benefits on the employee's payment summary for the corresponding income year (1 July to 30 June).
Recreation must be reported on your employee's payment summary. However, some fringe benefits are excluded from the reporting requirements. Even though they’re excluded, you still need to pay FBT on them:
- entertainment with food and drink and any benefits that came with it, such as accommodation.
- hiring entertainment, such as a corporate box.
Gear up for a good time
We like to party as much as the next guy. As accountants, we never get caught out by tricky FBTs or entertainment pitfalls, and we’d love to share our insider knowledge with you. Get in touch, and we’ll tell you everything you need to know so you can have a great time without worrying about the numbers.
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