Christmas will be here before we know it, and once again many employers will be thinking about recognising their employee’s efforts throughout the year and getting everyone together for some fun and relaxation. While we don’t want to be the party-stoppers, we do think we should let you know that it’s worth thinking about how to manage tax and Christmas. While you should feel free to celebrate, make sure that you don’t get stung with unexpected taxes; particularly fringe benefit tax (FBT) and associated income tax and GST pitfalls.
What is Fringe Benefits Tax (FBT)
Any benefit that a business provides to staff (outside of their normal wage or salary) may be classed as a fringe benefit and would therefore be taxable. In the case of Christmas giving, it pays to know that there are no different FBT rules that specifically apply. That said, there is room within the rules to keep the Christmas spirit bright.
Here are five tips for you to think about to try to keep your Christmas tax-free.
1. Give until it doesn’t hurt
Businesses need to keep in mind “minor benefits” and “$300” when deciding how they will finance their Christmas parties and gifts.
There is an FBT exemption for providing minor benefits valued at less than $300 where the benefits satisfy these criteria:
- they are provided to staff or their associates (for example a spouse),
- they are provided on an “infrequent” or “irregular” basis, and
- the benefit is not considered a reward for services.
Another thing to note is that the ATO allows the $300 threshold to apply to each benefit provided, not to a total value of “associated benefits”. So if, as a generous employer, you host a party and also give a gift to everyone, the party and the gift are considered separately for FBT. If each is less than $300, they are both generally FBT-free.
2. Where to hold the party and who gets invited
If you host your work Christmas party at your workplace during the working week, and limit attendees to staff, it will most likely be exempt.
However, if “associates” of employees (for example family) attend and/or the party is away from the workplace, the party is not an exempt benefit. It is then important to stay below the $300 threshold and satisfy the minor benefit conditions.
3. Taxis to or from the party
If you are thinking of paying for a taxi to get your staff from point A to point B, the important consideration will be where exactly those points A and B are.
If the taxi travel is from work to a venue where the party is being held (and vice versa), the Tax Office says this is all part of the fun and the fare can be included in the cost-per-head minor benefit limit. However, if staff members are to be taken by taxi between home and the party, this cost may attract FBT.
4. How are “gifts” of cash treated by the ATO?
If, instead of giving gifts or covering the bar tab, you’d rather hand out cash bonuses to thank your employees for their hard work during the year, this payment is treated in the same way as salary and wages. PAYG withholding and super guarantee obligations will be triggered, and the Tax Office will treat this bonus as ordinary time earnings.
5. Income tax deduction and GST credits for employee gifts
While you’re in the giving spirit, keep in mind that if a benefit is exempt from FBT you typically cannot claim it as an income tax deduction, nor can you claim any GST credits arising from the purchase.
Whether a gift is deductible and GST credits can be claimed depends on whether the gift provided is “non-entertainment” or “entertainment”. The former includes such gifts as flowers, wine, beauty products, vouchers and hampers, while the latter includes items of “recreation” such as tickets to a musical, theatre, movie, or sporting event. Check with us for assistance as there are a few details to consider here.
In the mean time, the tax treatment where a gift is provided to an employee is summarised in the following:
So, by all means take a moment to reflect and celebrate your team’s hard work and achievements over the past year. Treat your team and enjoy the festive season, but keep these tips in mind so the giving doesn’t hurt come tax time.
(This article has been updated from the original, published 11 November 2015)