With the holiday season upon us many employers and businesses want to reward their staff and loyal clients/customers/suppliers. It is important to understand how gifts to staff and clients, etc., are handled ‘tax-wise’.

Gifts that are not considered to be entertainment

These generally include a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers or a pen set, etc.

Briefly, the general Fringe Benefits Tax (FBT) and income tax consequences for these gifts are as follows:

• gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible; and
• gifts to clients, suppliers, etc. – no FBT, and tax-deductible.

Gifts that are considered to be entertainment

These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• gifts to employees and their family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax-deductible (unless they are exempt from FBT); and
• gifts to clients, contractors and or suppliers – no FBT and not tax-deductible.

Non-entertainment gifts at functions

What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees are given a gift or a gift voucher (for their spouse) to the value of $150?

What is the minor benefits exemption?

Generally, a minor benefit is a benefit that has a value of less than $300. It is exempt from FBT if it would be unreasonable to treat it as a fringe benefit, that is, if:

• the benefit is provided infrequently and irregularly
• the taxable value of the minor benefit and other similar or identical benefits (if they were treated as fringe benefits) is low

By keeping Christmas gifts and functions under $300 per head, an employer may be exempt from FBT. With the complex nature of tax regulation, employers are encouraged to contact their accountants for professional advice relating to their individual circumstances.

Source: Clear Accounting Solutions | Christmas gifts – the taxing questions

2 December 2020