Here are five tips for a fiscally fabulous festive season!
The office Christmas party: forget about the champagne headache, let’s chat about how you as a small business can avoid the tax hangover. We unwrap the fringe benefit tax, associated income tax and GST pitfalls, and share the top five tips to keep more money in your pocket over the festive season.
Give until it doesn’t hurt
There are two words and one dollar value that small businesses need to keep in mind with regard to tax and Christmas parties and gifts — the two words are ‘minor benefits’ and the dollar value is ‘$300’. There is a fringe benefits tax (FBT) exemption for providing minor benefits valued at less than $300 that satisfy certain criteria — that they are provided to staff or their associates, for example a spouse, on an ‘infrequent’ or ‘irregular’ basis, and the benefit is not considered a reward for services. Another thing to note however is that the $300 threshold applies to each benefit provided, not to a total value of ‘associated benefits’. So if, as a generous employer, you host a party and give a gift to everyone, the party and the gift are considered separately for FBT. If each is less than $300, then they are both generally FBT-free. The minor benefit exemption is dependent on the facts. Check with us or your accountant about this.
The party location is important
The most certain way to ensure festivities are kept tax-free is to host the party at your workplace during the working week, and to limit attendees to staff only. However, if ‘associates’ of employees attend, it is important to stay below the $300 threshold to satisfy the minor benefit conditions. If the Christmas party is away from the workplace, it is important to keep the cost per person (staff and their family) below this $300 threshold, among other conditions, to retain minor benefit status — but remember this is a total of meals, drinks, entertainment and associated benefits.
Deduction and GST credits for employee gifts? It’s a fine balance.
While in the giving spirit, the important thing to remember is that if a Christmas gift or benefit to an employee is exempt from FBT, such as a minor benefit, you typically won’t be able claim it as an income tax deduction, nor can you claim any GST credits from the purchase. Whether a gift is deductible and GST credits can be claimed depends on whether the gift provided is ‘non-entertainment’ or ‘entertainment’. The former includes gifts such as flowers, wine, ‘beauty’ products, gift vouchers and hampers, while the latter includes items of ‘recreation’, such as tickets to a musical, theatre, movie, or sporting event.
What about taxis?
For an employer thinking of paying for a taxi to get their staff from Point A to Point B, the important consideration in regards to this will be the location of points A and B. If the taxi travel is from work to a venue where the party is being held (and vice versa), the Tax Office says this is all part of the fun and the fare can be exempt from FBT under special rules. However, if some staff members perhaps overload on the Christmas cheer and consequently are themselves loaded into a taxi to be taken home (not back to the workplace), this cost may attract FBT.
Are Santa’s pockets filled with cash?
If instead of giving gifts or covering the bar tab you’d rather hand out cash bonuses to thank your employees for their hard work during the year, this payment is treated in the same way as salary and wages. PAYG withholding, super guarantee and payroll tax obligations will be triggered. The Tax Office will treat this bonus as ordinary time earnings.
If cashflow is tight pre-Christmas, but you’re expecting strong festive-season trading, Kikka Capital can help you meet your Christmas financing needs. So, whether it is for the party obligations mentioned above, or for additional inventory and staffing or even to launch and manage a pop-up to capitalise on high-traffic festive-season locations, Kikka is a click away. We offer an online seven-minute approval process for companies who can make a return on investment (ROI) within the Kikka repayment terms. After we look at your current business figures, we give you a credit line up to an approved amount, and it’s up to you how you use it. Visit kikka.com.au for more information.
With thanks to Melbourne-based Chartered Accounting and Financial Planning firm Port Phillip Group for their advice on tax and the office Christmas party (www.portphillipgroup.com.au).