Staff Gifts + Celebrations: What Can I Claim?
Written by: Michelle Flowers | Accounting Team
As Halloween is over and people are starting to decorate the Christmas trees, bringing out the Elf on a Shelf, or dusting off the Grinch, you might also be starting to plan your year-end celebrations. It’s a time of year that employees look forward to – time set aside to let loose with the bosses and a time to celebrate the year gone and the year ahead. But, as the boss, you might have one question on your mind…
” Before I book our holiday festivities, are there any tax gremlins I need to watch out for?”
Well, hold onto your reindeer because this area of the law can get tricky and can be surprisingly complex!
Fringe Benefits Tax In EOY Celebrations + Tax Law Considerations
To answer the question – Yes, there certainly can be unintended tax consequences when having a year-end celebration with your team and purchasing gifts for them.
Along with income tax and GST considerations, we need to look at another area of tax law: Fringe Benefits Tax (FBT). The outcome for all three areas in relation to staff gifts and celebrations, as always, depends on the details.
We, as your accountants, would consider questions such as:
- What is being provided? (E.g. entertainment or gifts)
- When is it being provided? (E.g. during work hours or after)
- Where is it being provided? (E.g. on-site or off-site)
- Is there alcohol and/or food included?
- Is it for employees or associates of employees and/or for clients?
- How much is the cost per head?
After going through the details, we will be able to determine if there are any unintended tax consequences, FBT or otherwise before you decide on what your end-of-year celebration looks like.
Here’s an example:
Employer schedules a Christmas party held at or on the business premises during work hours. The party has employees and associates of employees but no clients. Transportation has been provided afterwards to get people home safely, and the cost per head is under $300.
The result:
The benefit being provided to the employees is both an entertainment benefit (party) and an expense benefit (transportation). This means that the expenses are caught under FBT. In relation to the party, since the cost per head is less than $300, the benefit is considered a minor benefit and is exempt. In relation to the travel, if the trip is a single trip beginning or ending at the work premises, the expense is also exempt from FBT. This means the taxpayer does not need to pay FBT on the benefits provided. However, the expenses are not tax-deductible, and the employer cannot claim back the GST on the payments.
What’s A Tax Deduction + What Isn’t?
When it comes to what is income tax deductible and what isn’t in relation to entertainment benefits, the answer is generally simple – if the payment is caught under FBT, you can claim a tax deduction for the payment as long as the benefits aren’t exempt from FBT.
To be more specific:
- If the payment is subject to FBT, tax is payable at a rate of 47% on the grossed-up value of the benefit provided. This tax is income tax deductible, and the cost of the benefit provided is also income tax deductible. You are also able to claim back GST credit on the payment.
- If the payment is ‘caught under’ FBT, but it is exempt from fringe benefits tax, you do not pay fringe benefits tax on the benefit. However, you then also cannot claim an income tax deduction, and you also cannot claim back the GST credit on the payment.
Financial Information: Do You Pay Fringe Benefits Tax On Gifts For Staff?
It is a nice gesture for the employer to buy their employees a gift – at Christmas, a thank you for being a great employee, a baby welcomed to the world, etc. The questions that arise in these situations are: is this an FBT “benefit” to an employee? Do I get a deduction for this gift? Is this considered “entertainment” under FBT?
Generally, if the value of the gift to an employee or associate of an employee is under $300 per person, the benefits will be considered a minor benefit and will be exempt from FBT. Furthermore, if the gift is considered “entertainment”, then you cannot claim an income tax deduction for the expense, and you cannot claim back the GST credit on the payment.
Types of entertainment gifts would include things such as:
- Tickets to the theatre, concert, sporting event, etc;
- Providing a holiday; and
- A voucher for a meal at a restaurant or a movie theatre.
Types of non-entertainment gifts would include things such as:
- Gift vouchers;
- Hampers;
- Perfume; and
- Flowers.
What Other Benefits Do You Provide Staff That May Have Tax Implications?
As soon as you provide a “benefit” to an employee (or their associate) that is not captured through their wages, you start to dip into the area of FBT.
This area of the law can be convoluted – it’s like a labyrinth of turns, dead ends and trap doors. There are specific rules and specific exemptions mixed in with variations and different calculations, all depending on the details of the benefit.
Remember, FBT is separate from income tax – it’s a law on its own.
This is why we always recommend our clients speak to us before making decisions on providing any benefits to employees, whether that is a party like a Christmas party or providing an interest-free loan.
Other common areas captured by FBT legislation include:
- The use of an asset of the business like a work car;
- Providing employees discounts on merchandise or services;
- Providing employees with housing and/or food;
- Providing an employee with a loan, not on commercial terms (E.g. interest-free);
- Free membership to services like gyms or spas; and/or
- Providing entertainment-type benefits like tickets to a concert or providing accommodations for a holiday.
Each of these benefits comes with different rules in the FBT legislation. They have different exclusions, exemptions and calculations of taxable values and different outcomes for tax.
It’s no secret that FBT is burdensome – you can thank our employers of the 80s who tried to get around having to pay tax on wages by providing benefits instead of tax-free. It’s a given in our world today, so it pays to be careful about what you are providing and check with your accountant if you are doing the right thing.
Canny Accounting + Fringe Benefits Tax Advice
As Christmas approaches, it’s essential for employers to navigate the complexities of tax implications surrounding end-of-year celebrations and staff gifts. While these events can be a wonderful opportunity to foster team spirit and show appreciation to your hardworking staff, they can also bring unexpected tax consequences, especially when considering Fringe Benefits.
Having a Canny Accountant is a major help for businesses looking to understand and navigate the tax planning process! They can help clarify what is and is not tax-deductible, and what might be exempt and ensure your compliance with tax regulations. A little planning goes a long way in the tax world and that’s where we come in!
Get in touch with our team to discuss how we can start putting strategies in place to better your tax position now and for the coming years.
