Christmas will be here before we know it, and it is likely that better organised employers will already be thinking about their yuletide preparations.
While you should feel free to pop a champagne cork or three for your employees, make sure that you don’t get the tax hangover; particularly with fringe benefit tax and associated income tax and GST pitfalls.
Here are five tips for you to think about to try to keep your Christmas tax-free.
1. Give until it doesn’t hurt
There are two words and one dollar value that businesses need to keep in mind with regard to tax and Christmas parties and gifts — the two words are “minor benefits”, and the dollar value “$300”.
There is a fringe benefits tax (FBT) exemption for providing minor benefits valued at less than $300 that satisfy certain criteria — that they are provided to staff or their associates, for example a spouse, on an “infrequent” or “irregular” basis, and the benefit is not considered a reward for services.
Another thing to note however is that the $300 threshold applies to each benefit provided, not to a total value of “associated benefits”. So if, as a generous employer, you host a party and also give a gift to everyone, the party and the gift are considered separately for FBT. If each is less than $300, they are both generally FBT-free.
The minor benefit exemption is dependent on the facts. Check with this office for assistance.
2. The party location is important
The most certain way to ensure festivities are kept tax-free is to host the party at your workplace during the working week, and
to limit attendees to staff only. However
if “associates” of employees attend, it is important to stay below the $300 threshold and satisfy the minor benefit conditions.
If the Christmas party is away from the workplace, it is important to keep the cost per person (staff and their family) below this $300 threshold, among other conditions, to retain minor benefit status — but remember this is
a total of meals, drinks, entertainment and associated benefits.
3. Deduction and GST credits for employee gifts? It’s a ne balance
While in the giving spirit, the important thing to remember is that if a Christmas gift or benefit to an employee is exempt from FBT, such as a minor benefit, you typically won’t be able claim it as an income tax deduction, nor can you claim any GST credits from the purchase.
Whether a gift is deductible and GST credits can be claimed depends on whether the
gift provided is “non-entertainment” or “entertainment”. The former includes such gifts as flowers, wine, “beauty” products, gift vouchers and hampers for example, while the latter includes items of “recreation” such as tickets to a musical, theatre, movie, or sporting event.
The tax treatment where a gift is provided to an employee is summarised below.
4. Where do taxis stand?
For an employer thinking of paying for a taxi to get their staff from point A to point B, the important consideration in regards to this will be where exactly those points A and B are.
If the taxi travel is from work to a venue where the party’s being held (and vice versa), the Tax Office says this is all part of the fun and the fare can be exempt from FBT under special rules. However if some staff members perhaps overload on the Christmas cheer and consequently are themselves loaded
into a taxi to be taken home (not back to the workplace), this cost may attract FBT.
5. Are Santa’s pockets filled with cash?
If instead of giving gifts or covering the bar tab you’d rather hand out cash bonuses to thank your employees for their hard work during the year, this payment is treated in the same way as salary and wages. PAYG withholding, super guarantee and payroll tax obligations will be triggered. The Tax Office will treat this bonus as ordinary time earnings.
Gift to employee or associate
|FBT liability?||Income tax deduction?||GST credit available?|
|If gift constitutes “entertainment”|
|Minor benefit (< $300)||No||No||No|
|If gift constitutes “non-entertainment”|
|Minor benefit (< $300)||No||Yes||Yes|
Welcome to the InterActive Tax Consultants’ news – part of our personal and easy to understand approach to taxation. We are committed to working with you to achieve the best results for your business. If you have any question or would like more information on any of the articles please contact us.