Giving tax-deductible and FBT-free Christmas gifts
Christmas is fast approaching and preparations are already underway. As a business owner, you want to thank your employees and show how much they are appreciated.
Holding a Christmas party is a great idea. But the cost of holding a staff Christmas party is regarded as “entertainment” expenditure and:
- It’s not tax deductible
- You have to pay fringe benefits tax (FBT) if the cost per person is more than $300, which doesn’t fall under the “minor benefits” exemption.
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.
Giving “non-entertainment gifts”
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.
What happens when the “non-entertainment gift” is $300 or more GST inclusive?
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 49 percent on the grossed-up value (currently 2.0802).
What happens when providing staff with gifts of, say, beer or wine which is not consumed at the workplace or at a work social gathering but instead is consumed at home?
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.
Avoid giving “entertainment gifts”
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 49 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.
What should I give my staff this holiday season?
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.
However, 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 value of certain fringe benefits is more than $2,000 in an FBT year, you must record that amount on your payment summary. If you prepare your payment summaries with MYOB AccountRight, you’ll find that staying on top of your staff gifts every Christmas is a piece of (Christmas) cake.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced tax agent as each business’s circumstances vary for end of financial year.