entertainment+FBT

http://thepractice.com.au/tax-treatment-of-employee-client-parties-and-gifts/ =Tax treatment of employee / client parties and gifts = December 17, 2014 by [|The Practice]  With the Christmas break almost upon us, many employers and businesses will be planning to reward employees with a celebratory party or event. However, you should be aware of the possible Fringe Benefits Tax and income tax implications of providing ‘entertainment’ (including Christmas parties) to employees and clients.

FBT and Entertainment
Under the FBT Act, employers must choose how they calculate their FBT entertainment liability and most use either the ‘actual method’ or the ’50/50 method’.

Actual method
Entertainment costs are normally split up between employees (and their family) and non-employees (e.g. clients and suppliers). Expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT, and not tax deductible.

50/50 method
Rather than apportion entertainment expenditure on the basis of actual attendance by employees, etc., many employers choose to use the more simple 50/50 method. Under this method (irrespective of where the party is held or who attends) – 50% of the total expenditure is subject to FBT and 50% is tax deductible. However, the following traps must be considered:
 * even 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 general taxi travel exemption (for travel to or from the employer’s premises) cannot apply.

(*) Minor benefit exemption
The minor benefit exemption provides an exemption from FBT for most benefits of ‘less than $300’ which are provided to employees (and their family/associates) and which are infrequent and irregular. The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and gift) are not added together when applying this threshold.

However, entertainment expenditure that is FBT exempt is also not deductible. NOTE: ‘less than’ $300 means ‘no more than $299.99’. A $300 gift to an employee will be caught for FBT, whereas a $299 gift can be exempt.

Example: Christmas party
An employer holds a Christmas party for employees and their spouses – 40 attendees in all. The cost of food and drink per person is $250, and no other benefits are provided. If the actual method is used: If the 50/50 method is used:
 * For all 40 employees and their spouses – no FBT is payable (i.e., applying the minor benefit exemption), however, the expenditure is not tax deductible.
 * Expenditure is $10,000 and 50% (i.e., $5,000) is liable to FBT and tax deductible.

Christmas gifts
With the holiday season approaching, many employers and businesses want to reward their employees and loyal clients/customers/suppliers… so let’s look at how gifts to employees and clients are handled “tax-wise”.

Gifts which are not considered to be entertainment
These generally include, for example, a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.

Briefly, the general FBT and income tax consequences for these gifts are as follows:
 * gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and
 * gifts to clients, suppliers, etc. – no FBT, and tax deductible.

Gifts which are considered to be entertainment
These generally include, for example, tickets to attend a theatre, live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:
 * gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and
 * gifts to clients, suppliers, etc. – no FBT and not tax deductible.

Non-entertainment gifts at functions
What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150? Under the actual method, for employees attending with their spouses: no FBT is payable because the cost of each separate benefit (including the gift) is less than $300 (i.e., the benefits are not aggregated). No deduction is allowed for the food and drink, but the gift is tax deductible. Where the 50/50 method is adopted: As the gifts are not entertainment, the cost is tax deductible.
 * 50% of the total cost of food and drink is liable to FBT and tax deductible; and
 * the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300.

Want to know more? We’re here to answer your questions – contact us on (03) 8888 4000 or info@thepractice.com.au. Filed Under: [|Tax tips]

http://www.peakpartnership.com.au/files/uploads/Entertainment.pdf Meal Entertainment and Fringe Benefits Tax Most small businesses provide benefits in the form of food and drink or other non- cash benefits to their employees and/or their associates and clients. This is commonly known as entertainment. It’s important to understand that the provision of entertainment is a benefit subject to Fringe Benefits Tax (FBT). Some entertainment costs are not tax-deductible and GST input tax credits cannot be claimed, depending on how the business values these benefits. Examples of entertainment Some common examples of situations where entertainment is provided include: > Meal Entertainment > > Food and Drink > > In situations where food and drink is > > being provided, if it is provided mainly for refreshment, during business hours and on the business premises, it is less likely to be treated as entertainment. For example, a working lunch of sandwiches and orange juice would not be entertainment. > This Fact Sheet contains general advice that has been prepared without considering your objectives, financial situation or needs. You should consider the appropriateness of any advice before acting on it. Peak Partnership Pty Ltd ABN 24 064 723 550. Liability limited by a scheme approved under Professional Standards Legislation. As a rule of thumb, the more elaborate the function, the more likely it is that it will be treated as entertainment. Valuing Entertainment Benefits The Australian Taxation Office provides three methods that can be used by businesses to value and record their entertainment expenses: 1. Actual Method.
 * » Christmas parties (see our Fact Sheet ‘FBT—Christmas Functions and Gifts’);
 * » business lunches with clients;
 * » birthday parties;
 * » golf days;
 * » farewell and special celebration functions;
 * » memberships to clubs;
 * » tickets to sporting events.

2. 50/50 Split Method.

3. 12 Week Register Method. The most commonly-used methods are the Actual Method and the 50/50 Split Method. Minor Benefit Exemption This exemption may apply to certain entertainment benefits if: » the value of the benefit is less than $300 (inc GST) per person; » the benefit provided is infrequent and irregular; » the benefit arises in relation to an unexpected event or annual celebration; » it would be unreasonable to treat the minor benefit as a Fringe Benefit. This exemption can only be applied if your business is adopting the Actual Method of valuing meal entertainment benefits. continued over

Meal Entertainment and Fringe Benefits Tax Actual Method This method requires all entertainment benefits to be separated into the following categories: > Only the meal entertainment provided to staff, and their associates, is subject to FBT. These costs will be tax deductible and you are able to claim the GST input tax credits. > Client entertainment is not tax-deductible and GST input tax credits cannot be claimed. > Minor benefits provided to staff and their associates are also not tax deductible and GST input tax credits cannot be claimed. > 50/50 Split Method > The 50/50 Split Method is the easiest method to use. It takes the value of all meal entertainment provided (for staff, associates, clients and other persons), and treats 50% of the total as taxable entertainment. > Therefore a tax deduction will be available and GST input tax credits can be claimed on the 50% subject to FBT. The other 50% is not deductible and GST input tax credits cannot be claimed. > The Minor Benefit Exemption does not apply if you choose this method. The best method for you When determining the best meal entertainment valuation method for your business, you should consider the following factors: » who you provide entertainment to (staff, associates or clients); » how often you provide entertainment;
 * » Client entertainment (inc GST);
 * » Staff entertainment;
 * » Minor benefits less than $300 (inc GST).

» which method results in the lowest FBT liability; and

» administration costs of each method for your business. You should contact your Accountant at The Peak Partnership to determine which method is best for you and your business. We can then assist in implementing a system to capture the relevant information to minimise your taxation liability. Our supplementary ‘Entertainment Expenses Guide’ Fact Sheet also contains a simple overview of the the Actual Method and the 50/50 Split Method of valuing entertainment expenses.

https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employers-guide/FBT-and-entertainment/?page=5 Example: expense payment fringe benefit An employee entertained two of his employer's clients by taking them to lunch. The meals cost $50 each. The employee paid a total of $150 for the meals out of his own pocket. His employer later reimbursed him for the cost of the meals. This reimbursement gives rise to an expense payment fringe benefit. Special legislative provisions (refer to section 19.5  of [|Reductions in fringe benefit taxable value] <span style="background-color: #f5f5f5; color: #666666; font-family: Swiss721BT-Light,Arial,Helvetica,sans-serif; font-size: 18px;">) ensure that FBT is paid only on the portion of the reimbursement relating to the entertainment of the employee (and associates). In this case, the taxable value of the expense payment fringe benefit is $50.

<span style="background-color: #f5f5f5; color: #666666; font-family: Swiss721BT-Light,Arial,Helvetica,sans-serif; font-size: 18px;">example



50/50 method is only for meal when calculating taxable value of FBT.

Playing Bowling at Christmas party ---

<span style="background-color: #ffffff; color: #002341; font-family: Swiss721BT-Light,Arial,Helvetica,sans-serif; font-size: 20px;">Recreational activity--
<span style="background-color: #ffffff; color: #666666; font-family: Swiss721BT-Light,Arial,Helvetica,sans-serif; font-size: 18px;">pay FBT on the value of their employees playing in the competition.

https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Government-organisations/FBT-and-entertainment-for-government/?page=20

How do I account for gift cards?

If a company is giving a free gift card to anyone that spends a certain amount of money, how would I account for this. Also, the gift cards expire so how would I account for expired cards? Issuance of Gift Cards, and the outstanding liability you owe on them:

Cr. Deferred Revenue - Gift Card

Dr. Promotional Expense

Gift card gets used:

Cr. Sales

Dr. Deferred Revenue - Gift Card

Gift card expires:

Cr. Gift Card Revenue

Dr. Deferred Revenue - Gift Card