A company car, travel expenses, workplace discounts. These are a few of the ways that your business can reward employees (or provide a bit of a perk throughout the course of employment).
But if you are considering giving your employees a treat this year as a thank-you for their hard work, make sure you understand the tax obligations! Certain gifts given to your employees may be claimable as a tax deduction under strict conditions and rules.
What Kinds Of End-of-Year Gifts Might Be Tax Deductible?
Any gift classified as entertainment cannot be claimed on your tax, regardless of the time of year. If you wish to claim your gifts as a tax deduction (generally a good idea), it’s best to give items classified as non-entertainment gifts.
These types of gifts that are given to staff or associates are usually exempt from fringe benefits tax (FBT), with the item cost, as well as the GST, being claimable.
Certain gifts fall within the ATO’s guidelines on what is a tax-deductible gift. If you’re looking for ideas on what to give your staff this Christmas, consider
- Hampers
- Skincare
- Beauty products
- Flowers
- Wine
- Computers
- Crockery
- Gardening Equipment
- Gift Vouchers
- Groceries
- Games
However, these gifts should not be valued at more than $300 to claim the GST credit and to not incur FBT. If the gift costs more than $300, you will still be able to claim a tax deduction and the GST credit. FBT will, however, be payable at the rate of 49% on the grossed-up value of the gift.
If you’re feeling more generous and want to thank your staff, bear in mind that any gifts that you give to your staff that could be considered a personal gift may not be claimed as a tax deduction. Those items that cannot be claimed under the minor benefits rule generally fall under the entertainment or recreational classification and could include:
- Tickets to the theatre or sporting events
- Movie tickets
- Holidays
- Accommodation
- Flights
- Club memberships
- A trip to the amusement park
- Live Events
Keep records of all of the expenses associated with purchasing gifts this holiday season for your staff so that we can assist with your business’s tax return.
What About A Christmas Party?
If your business holds a Christmas party:
- on a working day, on your business premises, and only for your current employees, you don’t pay fringe benefits tax (FBT) for the food and drink
- off your business premises, or the party includes associates of employees (such as their partners), you don’t pay FBT if the party is a minor benefit – that is, the cost for each person is less than $300 and it would be considered unreasonable to treat it as a fringe benefit
- that includes clients, you don’t pay FBT for the costs relating to the clients.
If the Christmas party is not subject to FBT, you can’t claim income tax deductions for the cost of the party.
Make Sure You’re Doing The Right Thing
- Make sure your gift is less than $300 (including GST)
- Make sure the gift is classified as non-entertainment
- Make sure your gift is a once-off
- Make sure your gift does not incur FBT
- Keep your records to prove that the gift was bought for and given so that you can claim your tax deductions.
Some fringe benefits (such as entertainment gifts) may need to be included in payment summaries. When the value of certain fringe benefits amounts to more than $2,000 in an FBT year, it is your responsibility to record that amount in your payment summary.
Do you have more questions about your FBT gifting or party-related deductions occurring at the end of the year? For further information, you can consult with us. We’re here to help you check the list (and get it right).