Five Taxation Tips for Christmas
Given the time of year, tax is probably not everyone’s first priority at present. However, there are some and things to be careful of, and potential benefits, if a little bit of thought is put into tax planning during the festive season. Below are five taxation tips for Christmas from the team at Irish Bentley Lawyers.
1. Spur of the moment gifts for your whole team
If as a business owner you are thinking about providing your workers with gifts, there are a few things to keep in mind. Spontaneity is paramount, as is ensuring that any gifts for each person have a limited value. The minor benefit threshold for Fringe Benefits Tax (FBT) is set at $300.00, so make sure that any gifts you give are worth less than this amount. Any gift worth $300.00 or more will result in an unintentional (and undesirable) gift to the Commissioner of Taxation, at a tax rate of 47 per cent. Gifts must also be made on an ad hoc (one off) basis, otherwise they cannot be considered minor benefits for FBT purposes. A single gift voucher for one (1) store is one way by which you can show your employees they are appreciated, whilst bearing the above concerns in mind.
2. Ideas for the work Christmas party
Hosting your work Christmas party on a working day is a good way of not paying unnecessary FBT. FBT is not likely to apply to events held on a working day, regardless of the net spend per person. Additionally, consider providing taxi transport to or from the office, as any taxi fares finishing at an employee’s place of employment are FBT exempt.
If you intend to host your work Christmas party at the office, make sure that you spend less than $300.00 per person. Doing so will mean that the spending is a minor benefit and thus exempt from FBT. Be aware that the $300.00 amount includes all costs for the event including food, drinks, decorations and entertainment.
Taxi travel to Christmas parties that are not held at your office are considered separate benefits from the Christmas party itself (and gifts to your employees, if any). On this basis, theoretically, if the cost of each individual item per person is below $300 then the gift, Christmas party and taxi fare can all be exempt from FBT. Please note however that the total cost of all benefits provided to the employees must be considered when assessing if the benefits are minor.
If you are an employer who enjoys more Christmas parties toward the luxurious end of the scale, then be aware that you can claim a tax deduction for the cost of the event to offset any FBT that you pay.
3. Gifts for clients are a better idea than lunches
Finding time for a Christmas lunch with clients on a working day is tough at this time of year. Give consideration to providing your clients with a gift instead. There are taxation as well as efficiency and of course health benefits! Make sure that the gift is for the purpose of facilitating the relationship with your clients, and that are clear about expecting more work from the client in return. The gift will be tax deductible if there is a connection between the gift and the income generated.
Unfortunately, it is not tax deductible to entertain your clients during the festive season. You are unable to claim money spent on food on food or entertainment as a deductible business expense. You are also not allowed to claim any Goods and Services Tax input tax creditors on such expenditure either. Consider providing a gift instead, as said above.
4. Donate cash to a charity
All charities like cash donations because there is no expenditure required to generate the funds (such as that spent on dinners, marketing of silent auctions). From a tax standpoint, a cash donation is the best way to make sure that you can claim a deduction for the whole of your donation. Consider the following rules to ensure that you can get a deduction:
- The charity must be a deductible gift recipient (DGR), a list of which is on the on the Australian Business Register;
- Any merchandise that you buy for the donation is usually not deductible. A donation should be a gift for which you do not receive anything in return. Sponsoring a child or a humanitarian project overseas is usually deductible – such donations are considered as an amount of money equivalent to what is ultimately funded;
- The receipt from the charity will show the person or entity entitled to the deduction due to the charitable gift of more than $2.00.
5. Be careful of Christmas bonuses
Thinking of providing your team with a cash bonus rather than a gift? Remember that any such payment will likely be taxed in the same way as salary and wages, triggering a PAYG withholding obligation, as well as the superannuation guarantee provisions. Cash bonuses are nice, but not particularly tax effective.