With the festive season quickly creeping up on us we thought it was important to do a recap on the Fringe Benefits Tax (FBT) rules which apply to Christmas parties.  When it comes to celebration and generosity, the ATO isn’t nearly as merry as the man in the red suit!

So… Is A Staff Christmas Party Tax Deductible?

It depends… Tax laws regarding gifts to employees and clients can be complex.

Gifts and meals and entertainment provided at the Christmas party may attract Fringe Benefits tax, which is tax applied on benefits provided by companies to employees.

Non-entertainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 (including GST).  These include wine, flowers and hampers for example.  The business can also claim a tax deduction and any applicable GST credits.

Providing entertainment through meals or at your Christmas party has different tax implications.  If the cost for each employee is less than $300 (including GST), FBT is not payable, but no tax deduction or GST credit can be claimed.  Examples of entertainment gifts include tickets to the theatre, a movie, sporting event, or gift cards.

A gift and meals/entertainment provided at the Christmas party are viewed as separate benefits for the $300 minor benefits limit, which means employees can have twice the fun without FBT applying.

If you provide an employee with a non-entertainment gift that is more than $300 GST inclusive, FBT may be payable at the rate of 47% on the grossed-up value however a tax deduction and GST credit can still be claimed.

Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules.  Generally, a tax deduction and GST credit can be claimed for gifts to clients, provided they are not excessive.

The best tax outcome for your business this Christmas is keeping to the $300 rule and to give staff, customers and suppliers non-entertainment type gifts.

If you plan to purchase an investment property with a body corporate or strata community in place, keep in mind that you will have to pay body corporate fees—these are levies that the body corporate uses to manage and maintain the property. But not all these amounts are immediately deductible.

Body corporate fees are pooled to fund building insurance, common area maintenance, and building works and repairs. The fees you and other owners pay annually form the body corporate budget, distributed between an administrative fund and a sinking fund for capital works. A special-purpose fund may also be created.

There are three main funds that a body corporate use:

– Administrative fund: This is used to cover day-to-day expenses to maintain and manage the body corporate building. This fund is for things such as common water, common insurance, and management of the body corporate itself.

– General purpose sinking fund: This fund is used to cover non-routine expenses such as major repainting or a roof replacement. The fund is done so that unit owners will not be surprised with a one-off expense that may be large.

– Special purpose fund: This is usually a fund with owners making one-off payments for major works or repairs.

What can you claim a tax deduction for?

You generally can claim a deduction for body corporate fees and charges incurred for your rental property, according to the Australian Taxation Office (ATO).

You can claim a deduction if:

The payments are in relation to administrative funds and general-purpose sinking funds, as they are considered payment for the provision of services by the body corporate

However, you cannot claim a deduction if:

The body corporate requires you to make payments to a special purpose fund to pay for capital expenditure, these levies are not deductible and must be treated as capital expenditure.

The body corporate levies a special contribution for major capital expenses to be paid out of the special purpose fund. Payments to cover the cost of capital improvements or repairs of a capital nature are not immediately deductible. However, you may be able to claim a capital works deduction for the cost of capital improvements or repairs of a capital nature once the cost has been charged to the special purpose fund.

Generally, any capital gain on the sale of your Main Residence is free from Capital Gains Tax, however it is not always straightforward.

Your Main Residence must be a “dwelling” and includes up to 2 hectares of adjacent land, to the extent that it is used for private or domestic purposes is association with the “dwelling”.

From May 2017 onwards, a foreign resident individual generally isn’t entitled to the Main Residence Exemption.

1. Is the property your main residence?

Most importantly, the property must be established as your main residence. 

Factors include:

–           Address on the electoral role, drivers’ licence, mobile phone bill

–           What is your mailing address?

–           Do you have power and internet connected to the property?

–           Family photos

–           Did you move your stuff into the house?

–           Does your family live there?

–           Where do you pay land tax?

There is no minimum timeframe.

2. Can I have two main residences?

There is a six month overlap rule.

However, to use this, you need to live in the old property for at least 3 months in the 12 months prior to sale; and you cannot use the old property to earn rental income in that 12-month period.

3. Can I rent out my main residence and rent somewhere else or go overseas?

There is a six-year absentee rule where you can earn income from your main residence and still claim the main residence exemption when you sell it.

Importantly, it must be established as your main residence first.

Before the six years are up, you can move in and live there again for say 3-6 months and the six-year period starts again.

4. What if I inherit somebody’s main residence?

You can still access the Main Residence Exemption provided both the following conditions are met.

“Dwelling conditions”

Either the deceased acquired the dwelling before September 1985; or the deceased acquired the dwelling after September 1985, and it was their main residence when they died and not being used to produce income at that time.

“Post-death conditions”

The dwelling is sold within 2 years of the deceased’s death.