Gifts are divided into those the ATO classify as entertainment and others. Implications include tax deductibility, GST claims (only if registered) and FBT (Fringe Benefits Tax ). Remember that FBT is very expensive and should be avoided by most businesses.
So are Christmas gifts tax deductible when provided by a business? Let’s look at some specific gifts and the tax consequences:
- Entertainment Gift Cards, vouchers or payment of under $300 for: this includes movies, restaurants, Gyms, Golf, Fishing, & shows are all classed as entertainment. These are not tax deductible, GST cannot be claimed back in your BAS, but FBT is not payable.
- Non-Entertainment Gifts under $300 for: Gift cards for Flowers, Gift Baskets, department store gift vouchers, and alcohol in sealed bottles. These are Tax Deducible and you can claim the GST if you are registered. These gifts do not attract FBT and, from a tax perspective, are the very best type of gifts to give. They must be given infrequently. Christmas time is perfect. Remember these must be under $300. If your voucher is $300, you forgo the tax benefits!
- Gifts Costing $300 or More: these are subject to FBT and should be avoided. A gift costing $500 for an employee will incur Fringe Benefits tax of around $450!
What if family works in your business?
Gifts to family and friends of course are not business expenses and should not be paid by your business. The difficulty arises where family and friends work in your business. Be sure that you treat these people the same as similar arm length workers.
For example, if your daughter helps you with your Business Social media, she is unlikely to be eligible for the same Christmas gift as your full time employees. Any extra that you might be tempted to give her is a consequence of her being your daughter so be sure to pay that from your own pocket, not your business.
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The information in this article is general in nature and might not be right for your circumstances. Please arrange a meeting with one of our Accountants to discuss your particular needs. Accountants 2 Business Ph (07) 3823 2344so are