Tax might not be high on the list of things you’re thinking about as Christmas approaches. But Christmas will be here in a moment, and many employers will be thinking about recognising their team’s efforts throughout the year. You may already have plans in place, but have you thought about how to manage tax and Christmas gift-giving? Especially FBT on your staff Christmas gifts and work party.
Feel free to celebrate, but make sure you don’t get stung with unexpected taxes. FBT and associated income tax and GST pitfalls are the big ones to watch out for.
What is Fringe Benefits Tax (FBT)
Any benefit that a business provides to staff (outside of normal salary/wages) can be classed as a “fringe benefit”. The benefit would therefore be taxable.
There are no different FBT rules for staff Christmas gifts or work parties.
That said, there is room within the rules to keep the Christmas spirit bright. Here are five tips to try to keep your celebrations tax-free.
1. Give until it doesn’t hurt
Keep in mind “minor benefits” and “$300” when deciding how to finance your Christmas parties and gifts.
There is an FBT exemption for minor benefits valued at less than $300, where the benefits satisfy these criteria:
- they are provided to staff or their associates (for example a spouse),
- they are provided on an “infrequent” or “irregular” basis, and
- the benefit is not considered a reward for services.
The $300 threshold applies to each benefit provided, not to a total value of “associated benefits”.
So if, as a generous employer, you host a party and also give a gift to everyone, the party and the gift are considered separately for FBT. If each is less than $300, they are both generally FBT-free.
2. Where to hold the party and who gets invited
If you host the Christmas party at your workplace, during the working week, and limit attendees to staff, it will most likely be FBT exempt.
But, the party will not be exempt if:
- “associates” of employees (for example family) come along, and/or
- the party is away from the workplace.
Then it’s important to stay below the $300 threshold and satisfy the “minor benefit” conditions.
3. Taxis to or from the party
If you are considering paying for a taxi to get your staff from point A to point B, the important consideration will be where points A and B are.
- If the taxi travel is from work to a venue where the party is being held (and vice versa), the Tax Office says this is all part of the fun. The fare can be included in the cost-per-head minor benefit limit.
- However, if staff members are taken by taxi between home and the party, the cost might attract FBT.
4. How are “gifts” of cash treated by the ATO?
If you’d rather give cash bonuses instead of gifts or covering the bar tab, the payment is treated in the same way as salary and wages.
- PAYG withholding and super guarantee obligations will be triggered.
- The Tax Office will treat the bonus as ordinary time earnings.
5. Income tax deduction and GST credits for employee gifts
While you’re in the giving spirit, keep in mind that if a benefit is exempt from FBT, you typically cannot claim it as an income tax deduction. Nor can you claim any GST credits.
Whether a gift is deductible and GST credits can be claimed depends on whether the gift is “non-entertainment” or “entertainment”.
- Non-entertainment includes such gifts as flowers, wine, beauty products, vouchers and hampers.
- Entertainment includes items of “recreation” such as tickets to a musical, theatre, movie, or sporting event.
Check with us for assistance as there are a few details to consider here.
In the mean time…
Here is a summary of the tax treatment of gifts provided to employees:
This year, when you reward your team and enjoy the festive season, keep these tips in mind so the giving doesn’t hurt come tax time.
Need a hand?
A Synectic adviser can help you manage your business’ taxes and staff Christmas giving.
(This post was originally posted on 7 December, 2020 and updated on 16 November, 2023)