What Are The Tax Implications Of Christmas Gifts And Functions? Contact Carbon Accounting to find out.

What Are The Tax Implications Of Christmas Gifts And Functions?

With the festive season fast approaching, business owners are likely to have organised Christmas functions for their staff, and may even be considering gifts for employees, clients or suppliers to show their appreciation of hard work throughout the year. Something often overlooked is the tax implications of these gifts, and without a thorough understanding of this, you are risking lodging incorrect data when it comes to income-tax at year end.

The easiest way to break this down is to categorise gifts as entertainment gifts or non-entertainment gifts.

Tax implication of gifts to employees

Entertainment (such as parties and vouchers to events)
Most businesses like to organise an external Christmas party (such as a restaurant Christmas party) as a thank you for their employees’ work throughout the year. If you can keep your party to under $300 per person, you have some tax considerations to weigh up.
• Since a function is regarded as an entertainment expenditure, it is not tax deductible;
• Fringe benefits tax (FBT) is only paid if the cost per person is more than $300, as this doesn’t fall under the minor benefits exemption.

Non-entertainment (such as presents)
Gifts can be categorised as non-entertainment. These include bottles of alcohol, hampers, or gift vouchers (unless the voucher is for an event such as a movie)
• Since this not considered entertainment, it is a tax deduction
• Fringe benefits tax can apply if the cost is above $300.

Tax implications for gifts to third parties and suppliers

Entertainment gifts (such as parties and vouchers to events)
• As they are entertainment, no tax deduction is available.
• Gifts provided to third parties do not attract FBT.

Non-entertainment (such as presents)
• This is income tax deductible.
• Gifts supplied to contacts who are not employees do not attract FBT, regardless of their value.

What’s the best gift I should give my staff at Christmas?

The best outcome in terms of tax for your business would be to offer your staff a Christmas gift within the non-entertainment type gifts. Keeping the gift under $300 per employee increases the chance of an income tax deduction, and avoiding any FBT issues.
Unsure of whether your Christmas gift is tax deductible, contact Carbon Accounting for advice. Call us on (08) 9446 8588.

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