Making Christmas less taxing

Most of us are in party mode with Christmas only 14 sleeps away! For employers, the hangover from year end festivities can be prolonged if the FBT, income tax and GST implications are not considered.

So what are some of the issues employers should be aware of when providing benefits to staff at Christmas time?

Cash Bonuses - Some employers, budget permitting, may choose to provide cash bonuses to staff in their December payroll. Bonuses in the form of cash are considered as a business expense and therefore deductible under the general deduction rules. Correspondingly, cash bonuses are assessable in the hands of employees as salary and wages. When paying cash bonuses, employers should consider PAYG withholding, superannuation guarantee and state payroll taxes.

Christmas Parties – the FBT, income tax and GST implications of benefits provided at the year-end Christmas function vary depending on a number of factors including: 

• is the function held at the employer's premises or provided externally - often functions at the employers premises are not subject to FBT, but may still be considered entertainment and therefore not deductible
• what is the cost of the function per attendee - infrequent or irregular benefits valued less than $300 are considered minor benefits and not subject to FBT
• the basis that the employer is using in working out the taxable value of fringe benefits - there are a number of methods available to calculate the final FBT payable on entertainment benefits

Gifts – Gifts provided to employees or their associates will typically constitute a property fringe benefit and therefore are subject to FBT when the benifit value is over $300. Gifts provided to clients are outside of the FBT rules. The income tax deductibility and entitlement to ITCs for the cost of the gifts provided to employees or their associates depends on whether they are considered to be "entertainment". For example a paid holiday is considered entertainment while a bottle of spirits is not entertainment.

If you have any questions regarding the deductibility and FBT consequences of your Christmas party please contact us and one of our team will happily assist you with your enquiry.

Source: Taxpayers' The Taxpayer, November 2015 Issue