Employers may want to reward their employees with gifts during the holiday season but may be concerned about whether fringe benefit tax (FBT) applies.
As a general rule, minor benefits (such as gifts) are exempt from FBT. To be considered a minor benefit, each individual benefit must have a ‘notional taxable value’ and it must be unreasonable to treat it as a fringe benefit.
To qualify as a minor benefit, the benefit must be valued at less than $300. This does not include benefits provided to associates.
Five different criteria need to be considered when determining whether it would be unreasonable to treat the gift as a minor benefit.
• Regularity and frequency of the benefit:
More frequent and regular benefits means more likely to be considered minor;
• Total of the notional taxable values of minor benefit: Greater total of minor benefit (or similar benefits) means less likely to be considered minor;
• Likely total of notional taxable values of other associated benefits: Greater total value of other associated benefits, less like to be considered minor;
• Practical difficulty in determining the notional taxable value of the minor benefit: Difficulty of keeping necessary records considered; and
• Circumstances in which benefit or associated benefit is provided: Unexpectedness of event and whether it can be considered as being remuneration.
If the above criteria is met, the gift is likely to be classified as a minor benefit, and be exempt from FBT.
Gifts provided by employers as reward during the holiday season which are under $300 will classify as minor benefits and therefore will be exempt from FBT.
For further information about Fringe Benefits Tax please speak with your LT accountant. Contact us for more information.