Are Christmas Gifts For Staff Tax Deductible?

Written by Nathan Watt

So it’s Christmas and what have you done…..about gifts for your staff.

Pretty sure that’s the original line Lennon had and Yoko made him change it.  Anyway, it’s a good question, the people you employ are using their days in the mortal realm to help you run your business, so idk, seems like a good idea to say thanks once and a while.

So let’s say you’re not Ebenezer Scrooge and will be giving staff gifts this year. Naturally you’re wanting to know if the tax man will be chipping in for part of the cost, so read on dear reader you are in the right place because we will be going over the three separate and distinct pieces of tax legislation (that don’t always play nicely with each other); Fringe Benefits Tax (FBT), Income Tax and GST and their implications of such lofty ideals.

Fringe Benefits Tax

Before we can get into the nitty gritty, we need to look at the different gifts you might be considering because as I said in a previous blog, FBT is a pain in the arse complicated.

Gifts like movie tickets are treated differently to a bottle (or box if Coolabah is your type of thing) of wine or whiskey or a carton of beer, even if the cost of the movie ticket is identical to the cost of the bottle of grog. Totally logical right?

It all comes down to “Entertainment”. You see the politicians who legislated this (and the ones who have never changed it. I.e all of them since 1985) don’t want us to be entertained unless the government gets a tip. A tip of 47% to be precise.

So what is entertainment for FBT purposes? Well it is in fact conveniently the same as for income tax;

Meaning of entertainment

(1)  Entertainment means:

(a)  entertainment by way of food, drink or * recreation; or

(b)  accommodation or travel to do with providing entertainment by way of food, drink or * recreation.

(2)  You are taken to provide entertainment even if business discussions or transactions occur.

Note:          These are some examples of what is entertainment:

      business lunches

      social functions.

These are some examples of what is not entertainment:

      meals on business travel overnight

      theatre attendance by a critic

      a restaurant meal of a food writer.


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So that’s fairly vague right? So what is “non-entertainment”. Well there is no definition of this, rather it is everything that isn’t entertainment, in FBT speak these are things like “expense payment benefits”, “property benefits” and “residual benefits”.

C’mon Nathan get to the point.

Right you are:

If you give your employee a gift of a bottle of wine/whiskey/beer, a hamper, perfume (tread carefully – they might think, you think they smell), beauty products (again, tread carefully), gift card to bunnings/bottle shop/Myer (tell them to use it before they go bust!) that is less than $300 inclusive of GST, and you don’t give them gifts regularly throughout the year, only on the odd occasion, then no FBT will apply.

Income Tax

Luckily the income tax and FBT implications are in unison on this one (due to the single definition of entertainment between the 2 pieces of legislation). If you give a gift that is directly entertainment by way of food, drink or recreation, then no deduction for you.

If however you give one of the gifts above that is not entertainment, then you will get a tax deduction for it. Yay!


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GST

Let’s cut to the chase. If the gift is non-entertainment, like the ones mentioned above, and you get the FBT exemption and the income tax deduction, then you can also claim the GST on your BAS

The Numbers

So I couldn’t finish this without showing you what all this means from an after tax dollars perspective for you, comparing $50 & $100 gifts

Let’s assume you’re a small business, registered for GST, and you have 20 staff that you will buy a nice bottle of plonk for each of them;

Header

$50 per person =

$1,000 total cost

$100 per person =

$2,000 total cost

FBT Payable

$0

$0

GST Claimed Back

$90.90

$181.81

Income Tax Saving

$250

$500

After Tax Cost

$659.10

($32.95 per person)

$1,318.19

($65.90 per person)

 

Your staff being happy and not thinking you’re a tight arse? Priceless

Happy shopping.


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