Festive Season and Tax Implications
As the end of the year approaches many employers celebrate with staff parties, gifts and rewards to employees and events. It is important to understand the potential Fringe Benefit Tax obligations.
Food and drink consumed on business premises during a working day is generally exempt from FBT. The exemption doesn’t extend to associates of employees (partners). However the benefit provided may be exempt as a minor fringe benefit (less than $300 per person)
Food and drink consumed off the premises will generally be exempt where the benefit is a minor benefit (less than $300 per person).
Gifts to employees may be exempt where they are less than $300 per benefit and are infrequent.
Gifts to clients are not generally considered to be fringe benefits unless they are something like theatre tickets and the client also attends
HOLIDAY HOUSES
In 1997 the Government wrote Section 26.50 being “Expenses for a Luxury Facility” into the Income Tax Assessment Act 1997. At the time it was thought that this only applied to businesses. Now 28 years later the ATO have released a Draft Ruling and Draft Compliance Guides to the effect that Section 26.50 can apply to non-business individuals.
They do state in the Appendix to the Ruling “We acknowledge that individuals who are not in business may have entered into arrangements that may fall under Section 26.50 without realizing that we would consider whether Section 26.50 , in addition to whether Section 8-1 applied to an individual’s circumstances. The Commissioner will not devote compliance resources to reviewing whether section 26-50 will apply to expenses incurred in relation to holiday homes that are rental properties BEFORE 1 July 2026, if those expenses are incurred under an arrangement entered into prior to 12 November 2025”.
In the ATO’s view whether a property is used or held for use for holidays or recreation is determined from the pattern of how the property is used by the taxpayer, family and friends for no rent or reduced rent over a period on time.
The ATO uses 3 coloured zones to denote risk ratings into how section 26-50 will apply. Taxpayer needs to be conscious about the amber and red zones.
Amber Zone (medium risk)
* Increased personal use of the property by the taxpayer and friends for no cost or below market rates.
* Forgoing income generation from the property so it is available for personal use (actual use or mere availability for personal use).
* Using the property (or holding it as available) for personal non-income-producing use in peak income-producing periods
* Limited attempts to exploit the property to gain rents, lease premiums, license fees or similar charges.
Red Zone (High risk)
* prioritizing personal use of the property , by blocking out times for personal use each year, particularly during periods of high rental demand
* Limited attempts to rent out the property.
* Major features of the property, or parts of the property rented out, are inaccessible even when the property is being used by guests.
* Unreasonable restrictions being placed on potential renters that contributed to low overall occupancy.
* Advertising the property for rent at a price above the market rate.
* If the property is deemed to be your holiday home then Section 26-50 will disallow many expenses including interest on any borrowing.
