Christmas is right around the corner, and everyone including most businesses are making preparations to either shut down for a duration or alter their trading hours. A lot of businesses are considering thanking showing appreciation for the efforts that employees have put in for your business.
Usually businesses will hold a Christmas party, however a Christmas Party is regarded as “entertainment” by the Australian Tax Office, and the associated expenditure is deemed
- Non Tax Deductible
- and is subject to FBT if the cost per person is more than $300 as it would not be categorized as minor benefit
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 Goods and Services Tax.
Can I give a Non-entertainment gifts provided to employees are usually exempt from Fringe Benefit Tax (FBT) where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include skin care& beauty products, flowers, wine, perfumes, gift vouchers and hampers etc.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts, provided they are not excessive or overly valuable.
Entertainment gifts examples include theatre tickets, passes to attend a musical, live play, movie, tickets to a sporting event or providing a holiday can have different tax implications and you should consult your tax accountant for advice. Where the cost for the employee and their associate is each less than $300 GST inclusive, FBT is not payable, and no tax deduction or GST credit can be claimed.
However, if the cost for the employee and their associate is each $300.00 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable. The cost of any entertainment gifts provided to clients is not subject to FBT, and no tax deduction or GST credit can be claimed.
It is important that businesses maintain separate accounts in the general ledger for recording the above transactions to ensure that the correct income tax, GST and FBT treatment is applied.
- What happens when the “non-entertainment gift” is $300 or more GST inclusive?
Providing employees “non-entertainment gift” 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 46.5%.
- But 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.
So, what should I give my staff this holiday season?
The best 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 favorable 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.
For more information please contact the Australian Tax Office
