The key questions that we are asked this time of year are;
- will the staff gifts be subject to Fringe Benefits Tax (FBT) and
- will the provision of the gift to the staff member(s) be tax deductible.
Fringe Benefit Tax (FBT)
With regard to Fringe Benefit Tax, the Australian Taxation Office (A.T.O.) generally look at two factors
- is the gift ad hoc or spontaneous, and
- is it a ‘minor’ benefit.
To satisfy the first requirement the gift must be ad hoc or spontaneous. That is if you provided ongoing gym membership that would be an example of a gift that is not ad hoc or spontaneous. Likewise, if you provided a staff member with regular gift vouchers it would not be considered spontaneous or ad hoc.
If the item is not spontaneous and ad hoc the gift will be subject to Fringe Benefit Tax.
The second requirement is the gift must be ‘a minor benefit’. To qualify as a minor benefit, the gift must be less than $300 per person in value. If the amount of the gift is greater than $300 it will fail this requirement and will be subject to Fringe Benefit Tax.
Note, if you provide the employee with a $400 gift card, as it is greater than $300 it will be subject to Fringe Benefit Tax. If each item is less than $300 each, for example, you gift your staff member a $200 gift voucher and a $200 Christmas hamper, generally neither gift will be subject to Fringe Benefit Tax, so long as it was also spontaneous and ad hoc. However, the A.T.O. deem that they will look at the ‘total value of the benefits provided…the greater the cumulative value of small benefits, the less likely it is they may qualify as exempt minor benefits.’
Tax-deductible
With regard to the expense being tax-deductible you need to determine whether the expenditure falls into the category of entertainment, or not. That is, the cost of a Christmas gift for an employee is not tax-deductible where the gift represents entertainment by way of food, drink or recreation. For example, holidays, tickets to sporting events, theatre or cinema tickets and the cost of a meal at a restaurant are all categorised by the ATO as entertainment and hence not tax-deductible.
However, inexpensive Christmas gifts such as items under $300 mentioned previously, such as a bottle of wine or a hamper are not regarded as entertainment and will be tax-deductible.
Are you considering gifting your clients Christmas presents?
Should you require any further information in relation to tax implications with regard to providing gifts to staff please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.