The silly season is upon us! Another year has flown by and as we approach Christmas, our attention often turns towards rewarding hard-working staff. With that in mind, here are a few key considerations and reminders for small businesses should you be feeling merry:
Non-entertainment gifts to employees are fully tax-deductible! Furthermore, keep them under $300 per head and they will not incur Fringe Benefits Tax under the ‘minor benefits’ exemption.
Popular gifts to avoid being classed as entertainment include gifts cards, flowers and hampers.
The Christmas Party!
The minor benefits exemption also applies to the work Christmas party. It’s worth noting, however, that the Christmas party is treated separately to gifts for FBT purposes. So, if you’re feeling particularly generous this year, you can throw a party and give a gift a gift without attracting FBT (provided each benefit is kept under $300 per head).
If the cost of the Christmas party is likely to blow-out, it’s still likely to be exempt from FBT should the following apply:
- The party is hosted at your workplace during the working week
- Only staff attend the party
Therefore, if ‘associates’ (for example, family members) attend, best to keep it under $300 per head and avoid a nasty FBT bill.
It’s also worth noting that, aside from non-entertainment gifts, benefits are generally not tax deductible to the extent they are exempt from FBT. Likewise, you cannot claim GST credits on the purchases.
Christmas Bonuses
Who doesn’t love cold-hard cash? If you’ve had a profitable year and the bank account permits, passing some of this on to employees can be a great morale boost for the team. It’s important to note that cash bonuses are seen as a reward for services. Therefore, they will be treated in the same way as salary and wages, triggering PAYG withholding and super obligations.
Annual Leave
To minimise the risk of staff moving on and leaving you with a big leave pay-out, it’s always important to keep a close eye on the amount of annual leave accrued. Closing the business over the Christmas break can be a great way to manage leave balances. It also gives give staff a well-earned break and at the same time, you are seen to be a great boss.
Quarterly BAS Extension
Don’t forget that the ATO gives a generous extension on the due date of the December quarter BAS to 28 February. If you’d love to reward your staff, but you’re wondering how you will ever afford the above, this will hopefully help alleviate any short-term cash-flow pressure over the Christmas break.
Note however, that super obligations are still due 28 January and unfortunately the extension isn’t provided to monthly lodgers.
Celebrating achievements and taking time to reflect on the year is always an important part of business. Staff morale is usually high and an added reward or bonus can really kick-start the team off to another great year. So, should you choose to spread joy this Christmas, keep the above considerations in mind to avoid a nasty surprise come tax time.
Wishing you a very merry Christmas! Don't hesitate to reach out if you have questions! We'd be more than happy to help.
