Christmas is fast approaching and as a small business owner, "in some cases' you may want to thank your employees and show how much they are appreciated.
But did you know that the cost of holding a staff Christmas party is regarded as "entertainment" expenditure and is not tax deductible and you have to pay fringe benefits tax (FBT) if the cost per person is more than $300, which doesn't fall under the "minor benefits" exemption.
Instead, it is a better idea to give your staff certain items known as "non-entertainment" gifts which cost less than $300 as the amount is fully tax deductible with no FBT payable.
Non-entertainment gifts given to staff (including working directors J) are usually exempt from FBT where the total cost is less than $300 inclusive of GST per staff member.
A tax deduction and GST credit can also be claimed. The types of gift include beauty products, flowers, wine, whiskey perfumes, gift vouchers (certain) and hampers.
The $300 minor benefits exemption also separately applies to any gifts provided to associates meaning that a similar gift can also be provided to a spouse or partner of the staff member with the same favorable tax outcome.
What happens when the "non-entertainment gift" is $300 or more GST inclusive?
Providing employees "non-entertainment gift" of $300 or more GST inclusive is less tax effective. A tax deduction and GST credit can still be claimed, but FBT is payable at the rate of 46.5%.
But what happens when providing staff with gifts of, say, hamper or wine which is not consumed at the workplace or at a work social gathering but instead is consumed at home?
The cost is tax deductible, a GST credit can be claimed, and is exempt from FBT up to the $300 limit.
Non-entertainment gifts given to clients and suppliers do not fall within the FBT rules as they are not considered your staff. Generally, a tax deduction and GST credit can still be claimed provided they are not excessive or overly valuable.
Avoid giving "entertainment gifts"
Entertainment gifts include items of "recreation" such as tickets to a musical, theatre, live play, movie, sporting events or providing a holiday.
If the cost for each staff member and their associate is less than $300 GST inclusive each, FBT is not payable, but you can't claim tax deduction or GST credit.
For clients, the cost of any entertainment gifts provided is not subject to FBT, and no tax deduction or GST credit can be claimed.
So, what should I give my staff this holiday season?
The best tax outcome for your business this Christmas is to give staff non-entertainment type gifts that cost less than $300 GST inclusive per staff member as this is fully tax deductible with no FBT payable.
However, these favorable tax rules don't apply to gifts to sole proprietors and partners in a partnership as they cannot be employees of themselves. Benefits given to any staff employed by the business achieve the same tax outcomes as mentioned above