It’s Christmas time! Many of us have been preparing for the season of celebration with family and friends. Business owners, too, have been planning Christmas activities and/or gifts for their employees to express their gratitude.
Throwing a Christmas party is a universal idea for employers. However, this is regarded as “entertainment” and, therefore, not tax-deductible. And if the cost of the party exceeds $300 per person, you also attract Fringe Benefits Tax (FBT) as it is not considered a “minor benefit”. As a business owner, what is available for you to give your employees and make use of the expenditure as a tax relief? Short answer: gifts worth $300 or less.
Instead of a Christmas party, giving your staff non-entertainment gifts costing $300 or less (GST-inclusive) is fully tax deductible. As they say, good things come in small packages! These gifts could range from beauty products, perfumes, wines, vouchers and hampers. Giving gifts to associates of your staff does not count into the $300 limit of your staff-members. So, if you give their spouses gifts, they get a $300 threshold on their own. Giving non-entertainment gifts allows you to claim a tax deduction and a GST credit.
However, exceeding the $300 threshold means you are giving more than what is considered “minor benefits”. You will have to pay Fringe Benefits Tax (FBT) of 49% on the grossed-up value of the gift but you can still claim the tax deduction and the GST component.
On the other hand, entertainment gifts such as tickets to a theatre production, movie, or sporting events or providing a holiday with a value of less than $300 are non-deductible for tax purposes. While it still exempts you from FBT, it is advisable to flat-out avoid giving gifts of this nature if you are looking for a taxation benefit.
It is not necessary for the gifts to be consumed in the workplace for them to be tax deductible. It is also important to note that gifts to customers and suppliers are not captured by FBT as they are not your employees.
Employers also have the option to gift cash to employees as their Christmas present instead of benefits. For this to be tax deductible, the gift should be processed through payroll as a bonus with applicable withholding tax and superannuation paid. This will not attract FBT for you, and the employees will pay income tax on the amount. Having known these, you will find that employee gift-giving is a piece of fruitcake! Should you have any further questions about gifts and benefits, please do not hesitate to call the office on (07) 5451 1118. Merry Christmas from us at MJJ Accounting and Business Solutions!