As an Australian business owner, you're likely wondering, "are gifts for employees tax deductible?" Gifts given to employees are fully tax deductible as long as they cost under $300 and are considered non entertainment gifts.
Employee gifts considered non entertainment gifts that cost over $300 are subject to a tax deduction on your tax bill, but the fringe benefits tax applies. Entertainment gifts under $300 are not tax deductible, whereas entertainment gifts over $300 are tax deductible, but due to being considered entertainment expenses, are subject to the FBT.
Can I Give Gifts to Employees in Australia?
Yes, you may give gifts to your employees in Australia, but to make it as tax effective as possible, in most cases you don't want to gift anything overly valuable, because if the total cost less than 300 dollars, then the gift is fully tax deductible with no FBT payable.
However, according to the Australian Tax Office, there are some nuances to be aware of, particularly in relation to entertainment gifts and tax deductions, the minor benefit exemption and its tax implications, and more. Let's talk details to help you achieve the most favourable tax outcome possible.
Two factors to consider are if the gift is less than 300 dollars or more, and whether or not it is considered an entertainment gift.
Giving Non Entertainment Gifts to Employees vs Entertainment Gifts
One definition you need to be aware of here is a non entertainment gift, particularly when compared to entertainment gifts. An entertainment includes holidays, flights, accommodations, hot meals, tickets to a sporting event or theatre show, or anything else of the sort.
Non entertainment gifts are things such as flowers, gift hampers, or even gift vouchers. Generally speaking, non entertainment gifts are those where the property is not consumed on site at the time of gifting, which may also include various rentals, such as sports equipment.
That said, you can get pretty creative, as even something like a scenic helicopter ride gift voucher could technically be considered as non-entertainment, therefore giving you some really great options in terms of employee gifting.
In terms of a Christmas party for staff, the story is much the same. Although a staff Christmas party is a great way to show appreciation, keep in mind that this is considered a form of entertainment. Yes, both types of these gifts may be subject to tax deduction, but it also depends on the cost of the gift.
What's the Fringe Benefits Tax?
The FBT is a tax that employers must generally pay on gifts given to employees, although this does not always apply. If the gift meets criteria as outlined by the minor benefits exemption, then the FBT may not be payable.
The Minor Benefit Exemption
The Minor Benefit Exemption is a special exemption placed on gifts to employees that meet certain criteria.
If the gift costs less than 300 dollars inclusive of GST per person, it is given to staff or associates, and it is not considered a reward for services, then it likely qualifies as a minor benefit.
If this is the case, then the employer does not have to pay the Fringe Benefits Tax on the gift.
Are Non Entertainment and Entertainment Gifts Provided to Employees Tax Deductible?
Here is where things get a little murky in terms of staff gifts for employees, GST credit, the status of tax deduction, and FBT liability.
So, gifts that are given to employees that cost less than 300 dollars (GST inclusive), are considered a minor benefit, and are non entertainment in nature, are viable for 100% tax income tax deduction.
However, as traditional owners of businesses might know, non entertainment gifts that cost over $300, although still provide the same favourable tax outcome in terms of being deductible, the FBT applies at a rate of 47%.
This means that although you'll still get GST credits on a non entertainment gift over $300, you'll have to pay FBT.
The story is much the same for entertainment gifts. If the gift is considered entertainment, and it costs over $300, then it is tax deductible, although also liable for FBT payment. However, if the entertainment gift costs under $300, then it is not tax deductible.
What's a Good Tax Deductible Gift for Employees?
If you're looking for some professional advice, it's always best to consult a tax expert.
However, if you're looking to give a great gift for your employees in Sydney or Melbourne that is both tax deductible and exempt from the FBT, then something under $300 such as flowers, a gift hamper, a gift voucher, or a similar gift is recommended.
However, remember that gifts over $300 are also liable for tax deduction, although these are subject to the FBT. Whatever the case may be, gift vouchers to scenic flights from Rotor One are certainly tax deductible!
