As the festive season approaches it's time to start thinking about celebrations and spending time with friends and family.
For most business owners, it also means it's time to start thinking about saying thanks to your employees for another year of hard work.
But it's important to be aware of the tax implications of any gifts and celebrations you provide, as the rules can be complex.
Good gifts for tax purposes
If you decide to give your staff a Christmas present, the easiest way to avoid having to think about tax is to ensure your gift costs under $300 (inclusive of GST) and is considered a minor benefit by the ATO.
This means the gift must be given on an infrequent or irregular basis - like every six months - and is not considered a reward for service.
It's also essential that the present is not considered entertainment.
Examples of qualifying non-entertainment gifts include Christmas hampers, gift baskets, department store gift cards or vouchers, skincare and beauty products, sealed bottles of alcohol and flowers.
If your gift meets all of these criteria, it is exempt from any Fringe Benefit Tax (FBT) and you can also claim a tax deduction for it, plus the GST input tax credit if you are registered for GST.
Tax and entertainment
If you are conscious of paying extra tax on employee gifts, keep in mind that presents classed as entertainment may not be tax deductible.
The ATO considers gifts like restaurant meals, holiday accommodation and tickets to movies, sporting events and concerts as entertainment, so they do not make great Christmas presents if you want to escape adding to your tax bill.
If entertainment-type gifts cost less than $300 (inclusive of GST) FBT is not payable, but they are not tax deductible. You are also not permitted to claim the GST input credits.
When entertainment gifts are given to clients over the holiday season, they are not subject to FBT but there is no tax deduction and the GST input credit cannot be claimed.
Christmas gifts to others (and yourself)
It's worth remembering the minor benefits exemption for gifts costing less than $300 also applies to gifts provided to customers and business associates. This means you can also use it to provide a separate Christmas gift to the spouse or partner of an employee.
Also, keep in mind that you can't use these tax rules to give yourself a Christmas gift. If you operate as a sole proprietor or a partner in a partnership, you can't be your own employee, so you aren't eligible for these employee benefits.
Christmas parties and FBT
If you plan to hold a work Christmas party for employees or clients, you also need to follow the rules if you want to avoid paying FBT.
The ATO hasn't killed off the workplace Christmas party, as you are free to take advantage of the same $300 (including GST) minor and infrequent benefit exemption to hold a celebratory function for current employees and their family. The party does, however, need to be held on your premises during a business day.
To be free of FBT, the cost of food and drink consumed by current employees and family at the event must be less than $300 per head. However, there is no tax deduction or GST input credit claimable.
If the cost of the on-site party is over $300 (GST inclusive) per head, then there is still no FBT payable for employees and clients but it is payable for any family members attending.
Once you head off to a restaurant or club, there is still no FBT payable if the costs remain under $300 per head, as this is also considered a minor benefit. But once the per head cost rises over the $300 threshold, FBT is payable for employees and any family, but not for clients attending.
There's still time to plan your end -of-year gift-giving and celebrations, but the clock is ticking. If you would like to find out more about tax deductions or your FBT reporting requirements, call us today.