As the holiday season draws near, so does the flurry of party invitations and the prospect of selecting gifts for loved ones. But what about your hardworking employees? Have you pondered whether to gift them or host a celebratory gathering? And, importantly, have you thought about the tax consequences of these choices? Let’s delve into the realm of gift tax and tax considerations for parties to ensure you’re well-prepared.
Tax Considerations in a Nutshell
There are three key taxes to keep in mind:
- Income Tax: This helps you determine if your expenses are deductible or not.
- Fringe Benefits Tax (FBT): Set at 47%, FBT comes into play when providing benefits to employees. However, the rules vary based on the situation.
- Goods and Services Tax (GST): This is relevant for claiming GST credits and is associated with certain expenses.
A Quick Take on Entertainment Expenses: When it comes to entertainment expenses, remember that they typically aren’t deductible. Also, you can’t claim GST credits unless you’ve paid Fringe Benefits Tax on these expenses.
Deciphering Gift Tax
Gifts can be categorised as “non-entertainment” (think a bottle of wine) or “entertainment” (like holidays or tickets to shows).
For “entertainment” gifts:
- if you spend less than $300 per employee (including GST), you’re off the hook for FBT. However, no tax deduction or GST claim is allowed. Gifts under $300 fall under the “Minor FBT Exempt Benefit” category.
- When the cost exceeds $300, FBT comes into play, but you can deduct it from taxes and claim GST credits.
For “non-entertainment” gifts:
- You’re in the clear from FBT if the cost per employee remains under $300 (including GST).
- You’re entitled to a tax deduction and can claim GST credits.
- If the gift value surpasses $300, FBT enters the picture, but you can still deduct it from taxes and claim GST credits.
Cracking the Party Code
A party, being deemed “entertainment” per tax law, is typically not tax deductible, however the FBT and Income Tax rules fluctuate depending on the party’s location.
On-site Parties:
- If the party happens at your workplace, employees enjoy an FBT exemption as it’s considered a property benefit.
- If the cost per head (including GST) for family or associates stays under $300, the minor benefit exemption applies. Once this value exceeds $300, FBT applies to associates’ benefits.
Off-site Parties:
- The minor benefit exemption applies if the cost per head (including GST) remains below $300 for all attendees.
- Once it goes above $300, a taxable fringe benefit comes into play.
Parties are deductible and allow for GST credits only when FBT is levied.
It’s worth noting that entertaining suppliers doesn’t attract FBT, but you can’t claim a tax deduction.
If you have queries about employee gifts, parties, and the dos and don’ts, feel free to connect with us at (07) 4942 4001 or book a consultation.
Remember, the information shared here is general and isn’t a substitute for personalised advice. To make informed decisions, seek advice tailored to your unique situation. Tax Store Mackay are here to guide you through the tax maze.