Gifts: A Tax Guide for Business


We have previously discussed Christmas parties and the fringe benefits tax (FBT) and the income tax consequences of holding parties for staff and clients or suppliers. But as businesses often provide gifts to clients and staff this time of the year, we thought we would now discuss how they are handled "taxwise".

Gifts which ARE NOT considered to be entertainment, these generally include, for example:

  • a Christmas hamper, a bottle of whisky, wine, etc.; and
  • gift vouchers, a bottle of perfume, flowers, a pen set, etc.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and family members – FBT is payable (except where the less than $300 minor benefit exemption applies) and a tax deduction is allowed; and
  • gifts to clients, suppliers, etc. – no FBT, and a tax deduction is allowed.

Gifts which ARE considered to be entertainment, these generally include, for example:

  • tickets to attend a theatre, live play, sporting event, movie or the like; and
  • a holiday airline ticket or admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and family members – FBT is payable and a tax deduction is allowed (except where the minor benefit exemption applies); and
  • gifts to clients, suppliers, etc. – no FBT and no tax deduction.

For non-entertainment gifts at functions, what if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150? Under the actual method, for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the gift) is less than $300 (i.e., the benefits are not aggregated). No deduction is allowed for the food and drink, but the gift is deductible. Where the 50/50 method is adopted:

  • 50% of the total cost of food and drink is subject to FBT and deductible; and
  • the total cost of all gifts is not subject to FBT because the individual cost of each gift is less than $300.

As the gifts are not entertainment, the cost is deductible.


 

This is all pretty complicated so if you would like a little help, just contact our office. This information is correct at the time of publishing and may change.

 


 

Topics: Insider

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