It’s been a busy year and you want reward your employees for all their hard work by showering them with gifts or having a big end-of-year party.
But before you get into the spirit of the Season of Giving, make sure you’re aware of all the tax rules that come with it. (Especially with tax from this quarter due on the 20th of January).
Ask yourself the following questions…
Is your gift food or drink?
For Christmas lunches, dinners, ‘shouts’ at the local pub, and any staff parties, the normal entertainment rules apply and you can claim 50% of the expense for tax and GST.
Exceptions: If you’re having a staff morning tea in the office, it may be fully deductible because the 50% limitation rule does not apply to light refreshments.
Non-cash goods/services that are given to your staff members are dealt with under the FBT (Fringe Benefit Tax) rule. This will tax you at 49.25% of the value of the present (i.e. if you spend $1,000, you will get a tax bill of $492.50).
Will you be eating or drinking on the premises?
No matter where you are (whether it’s a pub or a private jet), if food and drink is provided or consumed on the premises, this is subject to the 50% entertainment expenditure limitation.
Exceptions: As above, light refreshments may not be subject to the 50% limitation rule.
If you’re taking your staff out for an activity that doesn’t involve eating or drinking, this isn’t covered by the entertainment 50% limitation rule and should be fully deductible.
Can your gift be enjoyed at a later date?
If your employee(s) can enjoy the gift outside of their general terms of employment at their leisure (for example, a voucher), then it may be subject to Fringe Benefit Tax as an unclassified benefit unless it falls within the aggregate threshold of $300 per employee, per quarter.
If the gift is part of the normal employment duties (for example, a team building trip away), then the entertainment rules apply over Fringe Benefit Tax rules, because the employee cannot choose when to receive the benefit. If your gift falls in the category, seek advice from an accountant, as you will need to pay GST on any non-deductible elements.
Exceptions: Are you taking your employees overseas? The entertainment expenditure limitation rule won’t apply, so long as the trip is received in the course of employment duties.
Giving a gift to a client or a supplier?
Generally, any food, drink or food/drink vouchers are 50% deductible. Anything else is generally 100% deductible.
Please note that this is an outline of the general rules, and you will need to talk to your accountant to be sure you’re on the right side of the tax laws.