In this sponsored post chartered accountant GAIL FREEMAN looks at the tax issues around giving staff a Christmas gift. 

Shirley and Eddie were looking to buy Christmas presents for their staff and clients, but their next-door neighbour had alerted them to a possible issue around tax.

So there they were in my office keen to know what’s what before they started buying gifts.

“It’s a complex area,” I told them. “Let’s look at the situation with your employees first and then we’ll look at your clients.

The definition of employee that we use for Christmas gifts is found in the Fringe Benefits Tax Assessment Act, where an employee is defined to include a past present and future employee. “Contractors are not regarded as employees and once you have determined that the gift recipient satisfies the definition of employee then we need to determine whether the gift is classified as entertainment or non-entertainment. “If someone satisfies the definition of employee, any gifts provided to their associates, as defined in the Act, follow the same rules. This includes spouses and children.”

I advised that if the gift was regarded as entertainment and cost less than $300, then it fitted within the minor benefits exemption and was not regarded as a fringe benefit. However, it was not deductible nor able to be claimed as an input tax credit for GST purposes.

“Whereas, if it costs more than $300, the first $300 is not disregarded and the full amount is subject to fringe benefits tax, it is deductible and input tax credits can be claimed on that amount,” I said. “Included as entertainment are such things, as restaurant meals, air tickets, cinema tickets and admission to amusement parks. “Conversely, in the case of non-entertainment gifts, if they cost less than $300 there is no FBT, the costs are deductible and input tax credits can be claimed. If the cost is more than $300 then the cost is subject to FBT, input tax credits can be claimed and the expenditure is deductible. Items that fall within the definition of non-entertainment include Christmas hampers, bottles of alcohol, gift vouchers, perfume and flowers. Shirley said she didn’t realise that such a simple gesture could be so complicated.

“It sure is,” I confirmed, “but in the case of clients and contractors the situation is different and a little less complicated.

“Firstly there is no liability to fringe benefits tax provided that they are not given to past employees. Secondly, it doesn’t matter whether the expenditure is less than $300 or not. So it is only a question of determining whether it is entertainment or non-entertainment. “In the case of entertainment, the expenditure is not deductible nor can any input tax credits be claimed. While for non-entertainment gifts, the expenditure is deductible and input tax credits can be claimed. “One other thing, if you plan to make donations to assist children in crisis in the third world do not presume that it is tax deductible. Many of these organisations are not listed on the deductible gift register and, as such, donations are not tax deductible.

“So, if you are planning to donate, please check the register first to ensure your tax deduction. If in doubt, ring the organisation to double check.”

If you need assistance on income tax or fringe benefits tax matters, contact the friendly team at Gail Freeman & Co Pty Ltd on 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer

This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.

Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.