Christmas Parties, Bonuses & Gifts: Essentials for Employers
As Christmas approaches, many Australian businesses start planning staff parties, bonuses and gifts.
It is a great way to recognise your team, but the old saying ‘forewarned is forearmed’ holds very true here. Be sure you are aware of what the true cost of your team giving and celebrations are.
The hidden costs are where the spend is non-tax deductible and/or Fringe Benefits Tax is deemed to apply. These factors can have your spend costing you as much as twice the cost you thought.
Many businesses are caught out by Christmas-related benefits each year.
This is not an area Beam can advise in. In the interest though of educating our clients we set out below information regarding Christmas Parties, Bonuses and Gifts published by one of our Professional Bodies. Nothing in this blog in intended to constitute tax advice. As you will see its a complex area and every business’s situation varies. We encourage you to reach out to your tax advisor if in doubt as to how these rules apply to your festive plans.
Christmas parties:
- A staff Christmas party is generally entertainment.
- Whether the function is tax deductible is dependent on whether it is determined to be a minor benefit (<$300), who attends and where the function is held.
Party or function held at your premises on a workday
| Attendance and Costs | FBT Status |
| If only employees attend. Party held onsite FBT does not apply | No FBT, Not tax deductible. |
| Current employees and spouses @ $180 pp. Under $300 minor benefit applies for associates of the employee. | Not tax deductible. No FBT (minor exemption applies for spouse) |
| Employees and clients @ $365 pp. | Employees – No FBT and not tax deductible. Clients – No FBT and not tax deductible. |
| Employee associate @ $365 pp (family members). | No FBT applies, not deductible. |
Party or function held at other premises
| Attendance and Costs | FBT Status |
| Only employees attend @ $195 pp. Under $300, minor benefit applies. | No FBT (minor exemption applies). Not tax deductible. |
| Employees and associates @ $195 pp. | No FBT (minor exemption applies for both). Not tax deductible. |
| Employees, associates, and clients @ $365 pp. Minor benefit doesn’t apply; therefore, FBT applies to employees and associates. FBT or minor benefit doesn’t apply to clients. | Employees and associates: FBT applies as value more than $300 pp. Note: if the business chooses not to pay FBT, then the amount is not tax deductible to the business. Clients: No FBT and not tax deductible. |
Bonuses:
Generally speaking, bonuses are paid for performance and should be processed through payroll and have tax deducted.
If paid only once a year, tax as a one off payment relating to a full year. Software like Xero will calculate the tax on this appropriately without the need for manual calculation and adjustment.
If the business is paying a bonus for a defined period of less than 12 months or pays multiple bonuses across a year, calculate tax using schedule 5 over the period it relates to. In this case manual calculations and a manual adjustment for PAYGW in the pay run is required.
Super guarantee (SG) is payable on all bonus payments, the exception being that if a bonus relates to overtime – only then SG is not payable.
Christmas gifts:
To Employees:
The provision of a gift to an employee (such as a hamper of goodies) may be a minor benefit that is an exempt benefit for FBT where the value is less than $300. If the gift is given at the party, each benefit – the gift and the food per head – are considered separately.
For gifts such as wine, food, hampers, vouchers, etc., these are not considered to be entertainment.
- If the gift is a minor benefit (i.e. less than $300 value), then the gift is not tax-deductible, therefore GST is not claimable for gifts to employees and their family members.
No FBT applies to gifts of less than $300.
- For gifts over $300, FBT may apply for employees and their family members, and it is tax-deductible.
Gifts such as a holiday, membership to a club, or tickets to a theatre, sporting, or musical event are considered to be entertainment.
To Clients:
Gifts may be classified as ‘entertainment’ or ‘non-entertainment’, and FBT is not relevant to clients and suppliers.
For gifts such as wine, food, hampers, vouchers, etc., these are not considered to be entertainment.
- Non-entertainment gifts to clients or suppliers are deductible, GST is claimable but No FBT applies.
Gifts such as a holiday, membership to a club, or tickets to a theatre, sporting, or musical event are considered to be entertainment.
- For clients and suppliers, the entertainment gift is not tax deductible, and no GST is claimable.
Avoid nasty surprises at Fringe Benefits Tax and EOFY Tax time – reach out to your tax advisor and run your plans by them so you are fully aware of their cost.
Beam will though ensure that the relevant information needed by your tax advisor is recorded when dealing with these transactions in the books of our clients.