FBT & Employee Reward Planning at Christmas

Employees Bonuses Taxes and On-Costs

Bonuses are additional payments sometimes given to employees at the discretion of the employer, acknowledging their performance over a period of time. Bonuses are an excellent way to show appreciation to staff and can assist with both providing motivation for the next year and retaining valuable staff. The remittance of bonuses can also often be a point of difference between yourself and competing businesses.

When deciding to pay a bonus, employers should consider the tax implications and associated on-costs. Bonuses are considered taxable income and are therefore subject to PAYG Withholding. Employers are also liable for superannuation guarantee, workers compensation premiums and payroll tax (if registered) on bonus payments.

Entertainment FBT Considerations

The ATO deems entertainment to mean a case where a business provides food, drinks or recreation to employees and their associates. Fringe Benefits Tax (FBT) could result from you providing any of the following entertainment related fringe benefits:

• Paying for food or drinks on behalf of staff
• Providing staff with tickets to events or functions
• Paying for memberships on behalf of staff e.g. for gyms or sporting clubs
• Hosting a function for staff (and their partners/families)
• Providing physical gifts to staff

If you are providing fringe benefits to staff, there may be tax implications, unless the benefit is specifically exempt from FBT.

Common FBT Exemptions

The first exemption is where the food and drink you provide (in any circumstance, not just for a Christmas party) meets all of the following criteria:

1. Is for current employees
2. Is consumed on the business premise
3. Is during a work day

For example, workplace tea & coffee facilities, or light meals provided during training sessions, are not subject to FBT. Please note, however, the exemption is not applicable to employees’ associates (such as spouses or children).

The second exemption covered is the ‘minor benefits exemption’ and applies when the taxable value of the benefit provided is less than $300 (GST inclusive) per person. When determining whether this exemption applies, you need to consider the frequency of the benefits i.e. are the benefits regular and systematic, or sporadic?

Where this second exemption applies, the expense will not be subject to FBT, however it is also not tax deductible, and no GST credits can be claimed.

Christmas Parties & FBT

Having a Christmas party for staff away from the business premises is considered ‘entertainment’ for FBT purposes. However, the second common exemption (‘minor benefit exemption’) may apply. Each case is different, but where the cost is less than $300 per head, this generally would mean no FBT is payable, but no tax deduction or GST credits could be claimed.

If you are feeling generous, and are looking to spend more than $300 per head, then FBT would likely apply. However you could then claim a tax deduction on entertainment expenses to the extent FBT is paid on those expenses.

As with most tax-related things, there are many intricacies in relation to entertainment and FBT that can lead to different outcomes, so we would suggest seeking professional advice.

Gifts & FBT

While most gifts provided to staff would attract FBT, there are some gifts that may be exempt from FBT. These are ‘non-entertainment’ gifts such as a hamper costing less than $300. The hamper would need to include ‘non-entertainment’ gifts such as food products or flowers for the employee to consume at home.

Conversely, things like movie tickets or restaurant vouchers would be considered ‘entertainment’ gifts, and subject to the FBT rules. ‘Entertainment’ gifts are not treated the same concessional way as ‘non-entertainment’ gifts.

Gaining Helpful Advice

Navigating the Christmas period can be tricky and it would be worthwhile discussing the details with our team. Gaining some assistance in understanding whether or not you will have a tax, or FBT liability, on the benefits you are wanting to provide to your employees this year can avoid nasty surprises later. Our team are Wollongong Accountants that service all around Australia and are here to help you, so please talk with us.

Whatever you decide we wish you every success!