30th November, 2020
As a business owner, you want to thank your employees and show how much they’re appreciated after a long year, so here’s how you can give gifts and save on tax at the same time.
In any normal year, December is a month of festivities, with workplaces around the country holding end-of-year celebrations and parties on a massive scale.
While things may be looking quite different this year due to restrictions on venues and on the size of gatherings, there’s still every reason to celebrate hard work done well.
Holding a party is a great idea, where restrictions allow. But the cost of holding a staff Christmas party is regarded as “entertainment” expenditure and:
So what is the “minor benefits” exemption? A minor benefit is one that is provided to staff or their associates, for example their spouse or partner, on an “infrequent” or “irregular” basis, is not considered a reward for services, and the cost is less than $300 “per benefit” inclusive of GST.
Instead, it is a better idea to give your staff certain items known as “non-entertainment” gifts that cost less than $300, as the amount is fully tax deductible with no FBT payable.
Non-entertainment gifts given to staff (including working directors) are usually exempt from FBT where the total cost is less than $300 inclusive of GST per staff member. A tax deduction and GST credit can also be claimed. The types of gift can include skincare and beauty products, flowers, wine, perfumes, gift vouchers and hampers.
The $300 minor benefits exemption also separately applies to any gifts provided to associates meaning that a similar gift can also be provided to a spouse or partner of the staff member with the same favourable tax outcome.
Providing employees “non-entertainment gifts” of $300 or more GST inclusive is less tax effective. A tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47 percent on the grossed-up value (currently 2.0802).
The cost is tax deductible, a GST credit can be claimed, and is exempt from FBT up to the $300 limit.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not considered your staff. Generally, a tax deduction and GST credit can still be claimed provided they are not excessive or overly valuable.
Providing entertainment gifts to your staff is less favourable than giving non-entertainment gifts. Entertainment gifts include items of “recreation” such as tickets to a musical, theatre, live play, movie, sporting events or providing a holiday.
If the cost for each staff member and their associate is less than $300 GST inclusive each, FBT is not payable, but you can’t claim tax deduction or GST credit. However, if the cost for the staff member and their associate is $300 or more GST inclusive each, a tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 47 percent on the grossed-up value.
For clients, the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.
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The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.
But, these favourable tax rules don’t apply to gifts to sole proprietors and partners in a partnership as they cannot be employees of themselves. Benefits given to any staff employed by the business achieve the same tax outcomes as mentioned above.
Some fringe benefits need to be reported on payment summaries. As the employer, if the total taxable value of certain fringe benefits is more than $2,000 in an FBT year, you must record these on an employee’s payment summary. If you prepare your payment summaries with MYOB AccountRight, you’ll find that staying on top of your staff gifts every year is a piece of cake.
This article, while written by accredited tax agent, chartered accountant and business advisor, Joe Kaleb, of small business tax and financial management tools portal Australianbiz, does not constitute professional advice. For advice on your specific situation, MYOB recommends engaging a qualified professional directly. You can begin looking for an advisor, here.