With the festive season ON almost all the businesses follow the basic Christmas tradition and that is giving gifts to clients, suppliers and employees & organising Christmas parties but this can turn risky from tax perspective and may result in a bad new year.
Fringe Benefit Taxation
Anything that is given by employer to employee which is not cash in regard to an employment relationship can be subject to fringe benefit tax. So, if you are planning to give gifts to your employees then this discussion is for you.
The government has provided a small concession in relation to unclassified fringe benefits and the good news is that Christmas gifts fall under this category of unclassified benefits. The law says that it will be unclassified benefit and there will be no FBT only if the following both conditions are satisfied:
- Value of unclassified benefits provided to each employee in the quarter
< $300 &
- Total value of benefits by employer to all the employees for the current & previous three quarters < 22,500.
Christmas Parties & Gifts
Food & drinks provided at business is normally subject to 50% entertainment deduction and this includes Christmas party as well. Moreover, any expenditure on food and drink provided in context of party can also be subject to 50% entertainment deduction and a GST adjustment will be required.
The entertainment limitation rule also applies to any food & drink given as a gift (e.g., bottle of wine or box of chocolates etc) as a token of appreciation to clients, suppliers or customers and this means that only half of the cost of these gifts can be claimed as deduction.
If you have questions regarding GST & FBT, contact IBBZ Accounting.