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Traditionally, Christmas is a time for giving. Many employers choose to show their gratitude towards staff and clients by providing social activity functions such as a Christmas Party (other than the cost of food) alcohol, entertainment, travel / accommodation, and gifts as a token of their appreciation and loyalty towards the business.

With the right approach, it is possible to enjoy some tax benefits out of your generosity, and also avoid Fringe Benefits Tax (FBT).

The following is a general summary of the tax treatment of Christmas giving.

GIFTS TO STAFF

Non-entertainment gifts to staff (such as Christmas hampers, bottles of alcohol, gift vouchers, pen sets etc.), are tax deductible and you can claim GST credits, irrespective of cost. Note however that you can generally avoid paying FBT if you keep each gift under $300. If this threshold is exceeded, FBT will apply. Therefore, you should be conscious of this threshold when providing such gifts to staff this Christmas.

Entertainment gifts to staff (such as tickets to movies / theatres / amusement parks / sporting events, holiday airline tickets etc.) which are under $300 will not attract FBT, but are not income tax deductible, and you cannot claim GST credits.

If the Entertainment expense is over $300, FBT will apply, but a tax deduction and GST credits can be claimed.

With the current FBT rate at 47%, the tax deduction and GST credits available are unlikely to provide a better tax outcome than avoiding FBT by keeping the gift(s) under $300.

GIFTS TO CLIENTS/CUSTOMERS/CONTRACTORS/SUPPLIERS

No FBT is payable on Gifts to Clients / Customers / Contractors / Suppliers etc, irrespective of the type of gift and cost. However, where a gift constitutes entertainment, no GST or tax deduction can be claimed. From a tax perspective, it’s better to provide non-entertainment gifts to clients (Christmas hampers, bottles of alcohol, gift vouchers, pen sets) and, in doing so, enjoy a tax deduction and GST credits.

CHRISTMAS PARTIES

Instead of (or as well as) gifts, it’s quite common for employers to host a Christmas Party for their staff (often including spouses) at a restaurant.
Where this is the case, the total cost will generally be exempt from FBT provided the per-head cost (dinner and drinks) is kept under $300 per person. This is known as the Minor Benefits Exemption.

MINOR BENEFITS EXEMPTION

 To enjoy the Minor Benefits exemption, the employer must use the Actual Method for valuing FBT meal entertainment. The Actual Method is the default method for valuing meal entertainment, and no formal ATO election is required to use this method. Under the Actual Method, an employer pays FBT (in the absence of an exemption) on all taxable meal entertainment provided to employees and their associates such as spouses.

The downside of using the Minor Benefit Exemption is that the meal entertainment is not tax deductible, and you cannot claim a GST credit.

This Minor Benefit Exemption is not available if you elect to value your meal entertainment under the alternative 50/50 Method. Under this method, you pay FBT on only 50% of all taxable meal entertainment provided to employees, spouses and clients, contractors, customers etc. irrespective of the cost.

Likewise, you can only claim a 50% income tax deduction and 50% of the GST credits on such meal entertainment. However as stated earlier, with the FBT rate now at 47%, the 50% tax deduction and 50% GST credits available under the 50/50 Method is unlikely to provide a better after-tax result than the Actual Method where no FBT is payable.

CASH / LEAVE BONUS

 Some employers may choose to provide their staff with a cash bonus rather than a non-cash benefit this Christmas. This transfers the tax liability to the employee (assessed at their marginal tax rate) and ensures the benefit does not attract FBT. This allows the employer to claim an income tax deduction for the full value.

Other employers may grant employees with an ‘annual leave bonus’ whereby no annual leave is deducted from employee leave balances during the business’ Christmas shut down period.

Should you wish to discuss Christmas Gifting and corresponding the tax implications or any other matter, please contact us on 03 9808 7377 or via email.

Disclaimer

This information is provided by Arthur Kyriacou & Co for educational purposes. It does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. In deciding whether to acquire or continue to hold an investment, you should consider the relevant product guide or product disclosure statement.

We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Arthur Kyriacou & Co will not be liable for any losses arising from reliance on this information.

For any queries, please contact info@alkfinancialgroup.com.au

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