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In The Spirit Of Giving These Holidays? Here’s What You Need To Know About Tax On Gifts Made To Your Employees

Are you considering giving your employees a treat this year as a thank you for their hard work?

Certain gifts that are given to your employees may be claimable as a tax deduction under strict conditions and rules. During this time of giving, a Christmas gift can be rewarding to both the employee and the employer.

Any sort of gift that may be classified as entertainment cannot be claimed on your tax, regardless of the time of year. If you wish to claim your gifts as a tax deduction (which is generally a good idea), it’s best to give items that are classified as non-entertainment gifts. These types of gifts that are given to staff or associates are usually exempt from fringe benefits tax (FBT), with the item cost, as well as the GST, being claimable.

There are certain gifts that fall within the ATO’s guidelines on what is a tax-deductible gift. If you’re looking for ideas on what to give your staff this Christmas, consider:

  • Hampers
  • Skincare
  • Beauty products
  • Flowers
  • Wine
  • TV
  • Computers
  • Crockery
  • Gardening Equipment
  • Gift Vouchers
  • Groceries
  • Games

However, these gifts should not be more than $300 in order to claim the GST credit and not incur FBT. If the gift costs more than $300, you will still be able to claim a tax deduction and the GST credit. However, FBT will be payable at the rate of 49% on the grossed-up value of the gift.

If you’re feeling more generous and really want to thank your staff, bear in mind that any gifts that you give to your staff that could be considered as a personal gifts may not be claimed as a tax deduction. Those items that cannot be claimed under the minor benefits rule generally fall under the entertainment or recreational classification, and could include:

  • Tickets to the theatre or sporting events
  • Movie tickets
  • Holidays
  • Accommodation
  • Flights
  • Club memberships
  • A trip to the amusement park
  • Live Events

Keep records of all of the expenses associated with purchasing gifts this holiday season for your staff so that we can assist with your business’s tax return.

As a rule of thumb:

  • Make sure your gift is less than $300 (including GST)
  • Make sure the gift is classified as non-entertainment
  • Make sure your gift is a once-off
  • Make sure your gift does not incur FBT
  • Keep your records to prove that the gift was bought for and given so that you can claim your tax deductions.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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