A short guide on when tax applies to business gifts and staff events

Many businesses plan business gifts and staff events from time to time – especially at the end of a year. It’s a way to acknowledge and reward loyalty, service and achievement. Some also like to celebrate the end of the year, or other milestones, by providing staff with a team lunch or other event. It’s important to understand that just because something is a gift, or provided as a reward or donation, doesn’t necessarily mean it is safe from tax. Below we provide a short guide on when tax applies to various business gifts and staff events.

Staff gifts
The value and/or nature of a staff gift will determine whether it is subject to tax:

    1. Cash bonuses are processed through the payroll and treated similar to salary and wages. This means that PAYG withholding is withheld from the bonus amount. Also, as the Australian Taxation Office (ATO) considers a bonus as ordinary time earnings, superannuation is payable on the bonus amount. There is an exception for superannuation where the bonus was entirely related to overtime.
    2. Gift cards are not recorded in the payroll but will attract Fringe Benefits Tax (FBT) where the FBT minor benefits exemption criteria are not met.
    3. Hampers and other physical items are treated the same way as gift cards. They are provided outside of the payroll and will attract FBT where the minor benefits exemption criteria are not met.

The FBT minor benefits exemption provides that a benefit will not generally attract FBT where both the following criteria are met:

    1. The notional taxable value is under $300.00
    2. With reference to the nature of the gift/benefit and considering the following five criteria, it’s unreasonable to treat it as a fringe benefit:
        1. Whether the benefit is provided on a regular or ad hoc basis.
        2. The combined total of all identical or similar benefits provided.
        3. The value of associated benefits provided in connection with the benefit – e.g. a meal could be an associated benefit in connection with a night’s accommodation and travel.
        4. The practicalities of determining the notional taxable value and the record keeping it would require.
        5. The circumstances in which the benefit was provided.

Staff events and functions
Where the event meets the criteria for the FBT minor benefits exemption, no FBT will apply. On the flip side though, you generally won’t be able to claim a tax deduction or GST credits for the related expenses.

Where the event does not meet the exemption criteria, FBT is payable. However you will be able to claim a tax deduction and GST credits on the event costs.

Client gifts
The value of gifts you give to your clients can be claimed as a tax deduction where both of the following criteria are met:

    1. The gift has a link with revenue generation – i.e. the gift is given with the expectation of continuing work or custom from the client.
    2. The gift does not involve entertainment – e.g. a meal at a restaurant, a recreational experience and or associated travel and accommodation.

If you do choose to provide gifts involving entertainment, the related costs are not tax deductible and no GST credits can be claimed on them either.

Charitable donations
The amount you or your business donates to charity can be claimed as a tax deduction where each of the following criteria are met:

    1. The amount must be over $2.00.
    2. The charity must be a deductible gift recipient (DGR) – you can download a listing of DGR’s from https://abr.business.gov.au/Tools/DgrListing.
    3. You or your business can’t receive anything in return – buying merchandise or something at auction is generally not regarded as a donation. Although you can generally donate money to the cost of something specific (such as a child’s education) where it is the charity paying for something directly rather than you or your business.

It’s also best to ensure that the donation is made from the entity or individual that the donation receipt is to be made out to. Complications can arise where the donation has been paid with another entities or individuals funds.

If you have any questions about whether tax applies to your business gifts and staff events you can call us on 03 5339 3200 or contact us here.

Thanks for reading.

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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