November 26, 2014

Giving tax deductible & FBT-free Christmas gifts

Christmas is fast approaching and preparations for celebration are already underway. The annual holiday season often comes with high expectations from your employees, in celebrating a year end and a new business beginning. As a small business owner, you may want to thank your employees and show how much they are appreciated.

Holding a Christmas party is a great idea. But did you know that the cost of holding a staff Christmas party is regarded as “entertainment” expenditure and

  • may be not tax deductible and
  • you may have to pay fringe benefits tax (FBT) if the cost per person is more than $300 (incl GST), which doesn’t fall under the ‘minor benefits’ exemption.

So what is the “minor benefits” exemption, I hear you ask? 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 may be a better idea to give your staff certain items known as “non-entertainment” gifts which cost less then $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 include chocolates, flowers, wine, perfumes, store gift vouchers, hampers, lotto tickets, pen set and watches.

The $300 minor benefits exemption applies to any gifts provided to staff and their 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 as long as the value of the gifts given to the staff member and associates does not exceed $300.

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.

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 $300 limit.

Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not considered your employees. 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 a 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.

For clients, the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.

So, 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.

Source: Joe Kalab, The Pulse Newsletter, MYOB.

Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

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