OK, we know tax is not the most exciting thing to think about in the lead up to Christmas. But these are the questions we get asked all the time, and if you are familiar with all the tricks and traps, you can save yourself and your business hundreds if not thousands of dollars.
1. Spontaneous, well thought through team gifts
The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below $300 per person. $300 is the minor benefit threshold for Fringe Benefits Tax (FBT) so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well at a rate of 47%. To qualify as a minor benefit, the gifts also have to be ad hoc - no once a month gym membership payments or giving the one person multiple gift vouchers amounting to $300 or more.
2. The work Christmas party options
If you really want to avoid tax on your work Christmas party then host it in the office on a work day. This way, FBT is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee's place of work is also exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after over indulging in Christmas cheer, the ride home is exempt form FBT.
If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way, you won't pay FBT because anything below $300 per person is a minor benefit and exempt. Be careful though as the $300 includes all the costs of the event so meals, drinks, entertainment, etc.
If the party is not held on your business premises then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can all be FBT free. However, the total cost of all benefits provided to the employees needs to be taken into account in determining whether the benefits are minor.
If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction for the cost of the event.
3. Give a gift rather than doing lunch
Few of us have that much time in the diary for lots of Christmas lunches so why not give a gift instead? In addition to a few extra hours saved and a lot less calories to work off, there is also a tax benefit. As long as the gift you give to the client is given for relationship building with the expectation that the client will bestow your business with more work (that is, there is a link between the gift and revenue generation), then the gift is tax deductible.
Entertaining your clients at Christmas is not tax deductible. So, if you take them out to a nice restaurant, to a show, or any other form of entertainment, then you can't claim it as a deductible business expense and you can't claim the GST credits either. It's goodwill to all men but not much more.
4. Give a charity a cash donation
Charities love cash. They don't have to spend any of their precious resources to receive it – unlike a lot of charity dinners, auctions, and promotional campaigns. And, from a tax perspective, it's the safest way to ensure that you or your business can claim a deduction for the full amount of the donation.
There are a few rules to giving to charities that make the difference between whether you will or won't receive a tax deduction.
- The charity must be a deductible gift recipient (DGR). You can find the list of DGRs on the Australian Business Register.
- If you buy any form of merchandise for the 'donation' – biscuits, teddies, balls or you buy something at an auction – then it's generally not deductible. Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child's education in the third world is generally ok because you are generally donating an amount equivalent to the cause rather than directly funding that thing.
- The tax deduction for charitable giving over $2 goes to the person or entity whose name is on the receipt.
5. Christmas bonuses
If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property then remember that this will be taxed in much the same way as salary and wages. A PAYG withholding obligation will be triggered and the ATO's view is that the bonus will also be treated as ordinary time earnings which means that it will be subject to the superannuation guarantee provisions.