‘Tis the season to be… giving tax-deductible gifts
With Christmas just around the corner, you may (or may not) be thinking about how to thank your staff for their hard work this year. Hosting an extravagant Christmas party is a great idea, but there are a few things to remember when it comes to tax. Any costs involved with throwing a party fall under entertainment expenditure which is generally not tax deductible. It may also be subject to fringe benefit tax (FBT) if the cost per person exceeds $300 (GST inclusive), which does not come under the minor benefits exemption.
What’s considered a minor benefit? I hear you ask…
In layman terms a minor benefit is akin to drinking too much of Nanna’s Christmas punch when you’re 14…no one notices. Right? Well sort of…
The taxman says a minor benefit is provided to staff and their associates (for example their spouse or partner) on an infrequent or irregular basis. It is not classified as a reward for service and the cost must be lower than $300 per benefit. A good example is gift cards.
So what if a Christmas gift is given during a Christmas party? Each benefit needs to be considered separately to determine if they are less than $300 total in value. If both the Christmas party and the gift are less than $300 in value it may fall under the minor benefit exemption.
Types of gifts – entertainment and non-entertainment, what’s the difference?
Giving non-entertainment gifts to your valued staff might be a better option for your business. Non-entertainment gifts that cost less than $300 are generally tax deductible and may not have any FBT implications. In addition, a tax deduction and GST credit can usually be claimed. Non-entertainment gifts include skincare, beauty products, gift vouchers, wine and alcohol, flowers, fragrances and hampers. In addition, the $300 minor benefits exemption also applies to any gifts given to an associate, such as a partner or spouse of the staff member.
If business is booming (!) and you’ve made the decision to give gifts totaling $300 or more (GST inclusive), there are slightly less tax benefits. A tax deduction and GST credit can still be claimed, but FBT is payable at a rate of 47% of the grossed-up value by the employer. Non-entertainment gifts given to your clients and suppliers do not typically fall within the FBT rules. As long as the gift is not excessive, generally a tax deduction and GST credit can be claimed.
Types of entertainment gifts include items of recreation, such as musical theatre tickets, tickets to concerts or the theatre, movie tickets, sporting events or even holidays (did I hear junket?). If these gifts cost less than $300 (GST inclusive) each then FBT is not payable but you are unable to claim a tax deduction or GST credit. However, if the gift exceeds $300, a tax deduction and GST credit can be claimed but FBT is payable at a rate of 47% on the grossed-up value.
Entertainment gifts given to your clients and suppliers are not subject to FBT and no tax deduction or GST credit can be claimed.
The most beneficial tax outcome for your business this holiday season is to give your staff non-entertainment types of gifts that cost less than $300 GST inclusive in value per staff member. This option is typically tax deductible and there is no FBT payable.
Get in touch with M + H Private
M+H specialises in FBT and making the most of the silly season. Don’t let the ATO spoil your Christmas punch - contact the professionals at M + H Private in Brisbane on +61 7 3036 7174 today.
This blog is intended to give an overview of the taxation issues involved and does not constitute tax advice. Given the complexity of the taxation system it is important that you consider appropriate tax advice to suit your circumstances.