Once more, it's that time of year! Christmas is coming up, and if you're anything like me, you've already been considering what gifts to get for your loved ones. Unfortunately, costs are skyrocketing because there are so many individuals who share our viewpoints, and it might be difficult to know where to locate some excellent discounts. So, these are my top suggestions for avoiding some of those unpleasant taxes throughout the holiday season. I hope these allow you to save some money!
Christmas Tax in Australia is a significant issue, and many people believe that it is too late to take any action. The Christmas tax can be avoided, though, and you can keep more of your hard-earned cash! Giving presents rather than purchasing them is the greatest method to get around this.
In this manner, you can support a deserving charity without having to pay taxes on pricey assets like automobiles or homes. Additionally, it's crucial to avoid purchasing any used things for friends or family members as they will also be subject to tax! There are lots of websites out there that sell gift cards, so all you have to do is wrap them and ship them off if you're still having trouble deciding what to get!
Avoid inviting the taxman to your holiday party
There are only four weeks till Christmas, so we bet you're planning your team's holiday celebrations now.
If you're a business owner, you might want to host a holiday party or buy some thoughtful presents to say thank you to your team and customers for a successful year.
Playing Santa is a terrific way to raise morale, but there may be unintended tax consequences.
Follow our straightforward guide to Christmas parties, gifts, and Australian tax legislation to avoid getting caught off guard with an unexpected tax charge this holiday season.
Is The Christmas Party At Work Subject To Fringe Benefits Tax?
Although there isn't a specific "entertainment fringe benefit," offering your staff and their connections with social and leisure activities like Christmas parties, vacations, and other social occasions may result in a fringe benefit.
You should evaluate the following considerations to assess whether hosting your office's holiday party qualifies as entertainment.
Why Do You Provide Employees With Food Or Drink?
It's not usually considered entertainment to provide your personnel with food or beverages to make their working day more comfortable. For example, cold water on a hot day or pizza for dinner while you're all working late to achieve a deadline come to mind.
But let's say you provide food and beverages at a gathering where the main objective is for the attendees to have fun. Then, it will probably be regarded as entertainment.
What Kind Of Food And Drink Do You Offer?
After then, think about the type of refreshments you're offering. Are they handcrafted delicacies or affordable snacks? Or are you paying for a multi-course extravaganza, cocktails at a hip bar, or a meal at a great restaurant?
It will probably be regarded as entertainment if the food and beverages you have planned are more elaborate than what you would often eat.
It is less likely that the meal you are supplying will be enjoyed if it is consumed during working hours, during overtime, or while travelling for business. This is because it is consumed for a purpose other than enjoyment.
More people are likely to be entertained by food or drink served at a function room, hotel, theatre, or restaurant than by refreshments in a store or at the workplace.
If the meal is accompanied by music, dancing, performances, and other forms of entertainment, it is also likely to be amused.
What Are The Food And Drink Prices?
The minor benefits exemption does not apply if the cost of holding your event exceeds $300 per participant, inclusive of GST, and you will be required to pay FBT.
If fringe benefits are sporadic, rare, and worth less than $300, they are free from FBT. However, take notice that the $300 threshold is not deductible and that FBT is applicable if it is surpassed.
How to Determine Your Entertainment Liability for FBT
You have to make a decision regarding how to determine your entertainment liability under the FBT Act. The "real approach" or the "50/50 method" are typically employed by business owners.
Actual Method
With this approach, you divide the cost of entertainment between the staff (and their families) and visitors.
Spending on employees is tax deductible and subject to FBT, whereas spending on non-employees is not subject to FBT, is not tax-deductible, and is not eligible for GST claims.
50/50 Method
You can opt to adopt the more simple 50/50 method rather than dividing up entertainment fees according on who shows up to your party.
According to this system, 50% of the entire cost is liable to FBT, regardless of where the party is held or who attends, and a tax deduction or GST credit can be claimed (where available) for this component. FBT is applicable to the remaining 50%.
But be careful not to fall into the following traps:
- First off, even if the event takes place on your property, the food and beverages you give your staff are still subject to FBT.
- The 50/50 technique precludes the application of the modest benefit exception.
Do Christmas parties or gifts make more sense?
The quick response is "yes"! Consider giving your company non-entertainment gifts that cost less than $300 rather than throwing a Christmas party.
Give your staff under $300 in non-entertainment gifts.
Under $300 non-entertainment gifts are typically exempt from FBT. You can also request a tax deduction and a GST credit.
Flowers, wine, perfumes, gift baskets, skincare and beauty products, and flowers are examples of non-entertainment gifts. Don't give tickets to athletic events, movies, plays, gym memberships, or vacation experiences because these are all examples of recreation or entertainment.
The $300 minor benefits exemption also applies independently to any presents given to associates, thus a matching gift can go to the staff member's spouse or partner with the same advantageous tax effect.
Gifts made to partners in a partnership or sole proprietors are not subject to these advantageous tax regulations. You can't be your own boss, after all.
Remember to deduct taxes for "non-entertainment gifts," such as gift certificates, and bear in mind that Christmas gifts are taken into account independently from the Christmas party when deciding whether the minor benefits exemption can be used.
Gifts Over $300 Per Person Are Less Tax Effective
Giving more expensive gifts has a lower tax benefit. However, FBT is payable at a rate of 47% on the grossed-up value of gifts valued at more than $300, including GST. You can still claim a tax reduction and a GST credit.
Gifts given to customers and suppliers are not subject to FBT. Non-entertainment gifts given to customers and suppliers are exempt from the FBT regulations because they are not considered employees. Generally, as long as the presents aren't excessively expensive or valuable, a tax deduction and GST credit can still be claimed.
Well, What Should I Give My Staff This Holiday Season?
Giving employees non-entertainment-related gifts that cost less than $300 rather than organizing a holiday party can benefit your company's tax situation the most. There is no FBT due on these and they are tax deductible.
We advise providing modest yet heartfelt gestures of your gratitude, such as baskets, gift certificates, wine, flowers, or cosmetics.
For bigger teams, gift cards are a terrific choice. Avoid the temptation to provide $300 gift cards because they do not qualify as a little benefit and are not $300 or less. Instead, try $250 or even $299.
Tips For Avoiding An Unexpected Christmas Tax Bill
Christmas parties are frequently viewed as entertainment and subject to FBT. Specifically, if they are hosted off-site, include social and leisure activities, and cost more than $300 for each employee. We observe:
- It is more tax advantageous to give non-entertainment presents that total less than $300 per employee.
- If you're giving out gift cards, resist the urge to give out $300 vouchers because this is not $300 or less and will disqualify you from the modest benefit exception.
- When considering whether the modest benefit exemption may be applicable, keep in mind that Christmas gifts are taken into account independently from the Christmas celebration.
Several suggestions for making the taxman happy this Christmas
The holiday party season is about to start. Thousands of Australian firms will pay for their employees to party at the annual end-of-year celebration over the coming weeks.
There will be regrets, awkward moments, and possibly a few hangovers. But is a tax hangover also in the offing if your company is spending money on a holiday celebration?
Here are our top ten suggestions for avoiding an unexpected holiday season tax bill—we've done the legwork for you:
- The expense of throwing a Christmas party for your employees off-site, say at a hotel, restaurant, or event space, would often be considered a fringe benefit, with fringe benefits tax (FBT) due by the employer.
- However, no FBT will be required if the cost per employee is below $300. This is due to the exclusion for'minor advantages'. This exemption also holds true for guests who bring their partners or spouses.
- Each benefit offered is exempt from the exception of the minor benefits. In real life, this implies that if you throw a lavish party for which you pay $290 per person and then give each employee a present worth another $290, both expenses are exempt from FBT.
- The entire event, not just the excess, will be subject to FBT if you spend more than $300 on it.
- Costs associated with a Christmas party, such as food and drink, are excluded from FBT if they are delivered on a business day and are consumed by current employees. However, if spouses or other invited guests of employees are allowed to attend, there can be an FBT obligation unless the modest benefits exemption would cover the expense (see above).
- If your company also pays for the cost of cab rides to and from the celebrations, these expenses will be included in the $300 per head cap if the event is off-site but will not be subject to FBT if it takes place on your property.
- The bad news is that even if your Christmas party's costs are not subject to FBT, they still cannot be deducted from your taxable income. Additionally, the company cannot deduct the expenses from its claimed goods and services tax credits.
- Confoundingly, gifts ARE often tax deductible, and a GST credit can be claimed, despite the fact that they are also exempt from FBT.
- There is no FBT if you throw a party for clients and contacts, but the expenses are not tax deductible.
- In typically, none of this has an effect on the employee's tax situation. They can enjoy themselves knowing that the employer is typically the only one who will be affected by taxes.
Top Advice To Avoid An Unwelcome Holiday Tax Bill
A lot of Australian firms will pay for their Team to let loose at the yearly end-of-year celebration in the coming weeks building up to the holiday break as the Christmas party season approaches.
Our best advice for avoiding an unwanted holiday season tax charge is to:
1. If you have a Christmas party for your employees away from the office, like at a hotel, restaurant, or event space, the cost of hosting the party would often be considered a fringe benefit, with the employer responsible for paying fringe benefits tax (FBT).
2. In contrast, no FBT will be required if the cost per employee is less than $300. This is due to the exclusion for'minor advantages'. This exemption also holds true for guests who bring their partners or spouses.
3. Each benefit offered is exempt from the minor benefits exception. In real life, this implies that if you throw a lavish party for which you pay $290 per person and then give each employee a present worth another $290, both expenses are exempt from FBT.
4. If you spend more than $300 on the event, the entire amount—not just the excess—will be subject to FBT.
5. If food and drink are given on a working day on your business premises and are eaten by current employees, they are exempt from FBT. If spouses or other invited guests of employees are permitted, there may be an FBT obligation unless the modest benefits exemption covers the expense.
6. If your business pays for cab fares to and from the celebrations, these expenses will be included in the $300 per person cap if the event is off-site but will not be subject to FBT if it is held on your property.
7. The cost of your Christmas party is not tax deductible for income tax reasons if it is not subject to FBT. Additionally, the company cannot deduct the expenses from its claimed goods and services tax credits.
8. Perplexingly, gifts ARE often tax deductible, and a GST credit can be claimed, even if they are also exempt from FBT. Therefore, you are also eligible for the tax-deductible gift if you work for your own company as an employee. Happy holidays to you as well!
9. There is no FBT if you throw a party for clients and connections, but the expenses are not tax deductible.
10. In general, none of this has an effect on the employee's tax situation. Since the employer normally bears the burden of tax repercussions, they are free to dine, drink, and enjoy themselves!
Guidelines For Preventing Fbt On Your Staff's Holiday Gifts And Work Party
Soon it will be Christmas, and many companies will be considering ways to thank their staff for all of their hard work during the year. Although you may have plans in place, have you given any thought to how you will handle taxes and Christmas gift-giving?
You are welcome to celebrate, but watch out for unforeseen taxes. The main dangers to watch out for are those related to GST, connected income tax, and fringe benefits tax (FBT).
What is Fringe Benefits Tax (FBT)
Any advantage that a company offers to employees (in addition to regular salaries and wages) is referred to as a "fringe benefit." Therefore, the benefit would be taxable.
FBT guidelines remain the same regardless of the time of year.
Nevertheless, there is room for maintaining the Christmas spirit while adhering to the laws. To help you keep your celebrations tax-free, here are five suggestions.
Give Until It Doesn’t Hurt
Consider "small benefits" and "$300" when choosing how to pay for your holiday gatherings and presents.
Minor benefits worth under $300 are exempt from FBT if they meet the following requirements:
- They are made available to the staff or their colleagues (for example, a spouse),
- they are delivered sporadically or irregularly, and
- The benefit is not regarded as payment for services rendered.
Each benefit delivered is subject to the $300 level rather than the aggregate value of all "related benefits". Therefore, if you organize a party and give everyone a present as a kind employer, the party and the gift are treated independently for FBT purposes. They are often both FBT-free if they are both less than $300.
Where Should The Party Be Held? Who Should Attend?
The Christmas party will probably be exempt from FBT if you host it at work during the workweek and only invite employees.
However, the party will not be excluded if "associates" of the employees (for example, relatives) attend and/or the party is not at the workplace. Therefore, it's crucial to adhere to the $300 cutoff and fulfil the "small benefit" requirements.
Taxis To Or From The Party
The location of points A and B is crucial if you're thinking of hiring a cab to transport your employees from one location to another.
The Tax Office claims that taking a taxi from your place of employment to the party location (or vice versa) is all in good fun. As a result, the fare can be included in the minor benefit cost-per-head limit.
However, if a taxi is used to transport employees from their homes to the celebration, the fare may be subject to FBT.
How Does The Ato Handle "Gifts" of Cash?
If you'd prefer to give cash bonuses rather than gifts or foot the bill at the local pub, the payment is handled just like salary and wages.
Super guarantee and PAYG withholding duties will be activated. The bonus will be treated as regular-time earnings by the Australian tax office.
Employee Gifts Are Subject To Income Tax Deduction And GST Credits
While you're in the giving mood, bear in mind that you normally cannot claim an income tax deduction for a benefit that is exempt from FBT. A GST credit cannot be claimed either.
Depending on whether a gift is "non-entertainment" or "entertainment," it will either be deductible or eligible for GST credits.
Non-entertainment gifts include things like flowers, wine, cosmetics, gift cards, and hampers. Items of "recreation" such as tickets to a musical, play, movie, or sporting event are considered entertainment.