The application of fringe benefits tax means that it’s more tax effective to provide staff with non-entertainment gifts at Christmas rather than hosting a party.
In Part 2 we look at work Christmas gifts.
Here we examine some of the most common benefits provided at Christmas and the various income tax, GST and FBT implications. It is assumed that the business is not electing to use either the 50–50 split method or the 12 week register method for calculating the taxable value of meal entertainment expenditure.
(i) Non-entertainment gifts
As noted above, non-entertainment gifts provided to employees are usually exempt from FBT where the total value is less than $300 inclusive of GST. A tax deduction and GST credit can also be claimed. These include skincare & beauty products, flowers, wine, perfumes, gift vouchers and hampers.
Given that the cost of hosting a Christmas party is not tax deductible (where the $300.00 minor benefit exemption applies), for a given dollar spend per employee it would be more tax-effective for the business to instead provide staff with these tax deductible non-entertainment benefits.
There is an interesting twist with providing staff with say beer or wine which is consumed at the workplace or at a work social gathering. In this situation, the expense is treated as non-tax deductible entertainment. However if the employee consumes the alcohol at home, the cost is tax deductible up to the $300.00 limit.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not provided to employees. Generally a tax deduction and GST credit can be claimed for these gifts provided they are not excessive or overly valuable.
(ii) Entertainment gifts
The provision of entertainment gifts has different tax implications (examples include theatre tickets, passes to attend a musical, live play, movie, tickets to a sporting event or providing a holiday). Where the cost for the employee and their associate is each less than $300 GST inclusive, FBT is not payable, and no tax deduction or GST credit can be claimed.
However, if the cost for the employee and their associate is each $300.00 or more GST inclusive, a tax deduction and GST credit can be claimed, but FBT is payable. The cost of any entertainment gifts provided to clients is not subject to FBT, and no tax deduction or GST credit can be claimed.
It is important that businesses maintain separate accounts in the general ledger for recording the above transactions to ensure that the correct income tax, GST and FBT treatment is applied.
This article was reviewed by Peter Bembrick, tax consulting partner at HLB Mann Judd, and is provided courtesy of the small business tax portal www.australianbiz.com.au.