Christmas tax tips
It’s that time of the year again – Christmas countdown has begun! Whilst parties might be off the agenda for some Australian businesses this year due to COVID-19, employers may want to give Christmas gifts to their employees, contractors and clients. An important part of the festivities to remember is the tax implications. Here are some tips to be tax-effective this holiday season:
Keep the cost per head for your Christmas celebrations to less than $300.
Christmas parties are a part of “entertainment benefits”. The expenditure relates to employees or their associates attending the function, and so the expenses may be subject to fringe benefits tax (FBT) unless an exemption (like, “minor benefits” exemption) applies.
A minor benefit is one that is provided to an employee or their associate (e.g. spouse) on an “infrequent” or “irregular” basis. This isn’t a reward for services, and it should cost less than $300 (inclusive of GST) “per benefit”.
Over $300 and the party will be subject to FBT, essentially doubling the cost of the party, although if FBT is paid, the entire party would be a deductible expense and the GST credits can be claimed. Conversely, if less that $300 pp, no FBT needs to be paid but the expense is not deductible, and the GST credit can’t be claimed.
Separate gift-giving and parties.
With a party, all expenses relating to the party need to be combined when calculating the $300 pp amount, e.g. place names, bon bons, food, venue hire, entertainers, gifts on the day etc. Notwithstanding this, there is a separate FBT exemption relating “property” where a gift of less than $300 given on an ‘infrequent and irregular basis”. So some thought to the timing, quantum of the gift and the party could be beneficial.
Give gift vouchers instead of Cash Vouchers/cards.
Gift vouchers are considered as ‘Property” for FBT purposes and qualify for an FBT exemption whereas cash does not. This is also true for staff incentives but again, to qualify, giving must be done on an ‘infrequent and irregular basis”.
Give a bottle of alcohol instead of a shout of drinks.
Similar rationale as above, packaged goods are defined as property, and a shout is defined as meal entertainment. The ‘infrequent and irregular’ and FBT, GST and deductibility rules apply.
Give staff (and your business) fun productivity tools.
Items like a new phone, tablet, laptop & smart watch etc. are FBT free and deductible to the extent that they are used for work. GST can also be claimed on these items too.
Call us if you have any questions. Wishing you all a safe and happy Christmas followed by a prosperous New Year!