Rewarding your employees at Christmas
The holiday season is an opportunity to reward your employees for their hard work throughout the year; however, it is important to be aware of the tax implications involved.
Whether you are considering throwing a work Christmas party, giving gifts or holiday bonuses, knowing the tax implications for each will guide you towards an option that can best benefit you and your staff.
Christmas parties
Employers plan a Christmas work party to boost morale and show appreciation for their staff’s work. Avoid a fringe benefits tax (FBT) by ensuring the cost of the party is less than $300 per employee. If employees plan on bringing a spouse, the amount will be split between the employee and their associate. To minimise your tax bill, consider holding the party at staff headquarters during a working day. It is important to note the costs that are not FBT exempt, can be claimed as an income tax deduction and GST credit can be claimed on that portion.
Gift giving
Non-entertainment gifts can qualify for FBT exemptions, tax deductions and GST credits, provided they meet the ATO’s criteria. Non-entertainment gifts like beauty or skincare products, flowers, wine, gift vouchers or hampers under $300 are usually FBT exempt. When giving non-entertainment gifts exceeding the value of $2000 within an FBT year, employers should also know that some fringe benefits need to be included on payment summaries.
Holiday bonuses
Holiday bonuses are given to recognise an employee’s performance. However, the tax implications involved may reduce the effectiveness of your reward. A holiday bonus is a one-off annual payment made in addition to an employee’s salary. Holiday bonuses are taxed as a supplemented income. This means you are required to withhold a portion of the bonus as you would in pay events with commission. If you are looking for a tax-free or tax-deductible alternative, you might consider giving your employees gifts that cost under $300 instead.
If a holiday bonus remains the most appropriate option to reward your employees, there are several considerations you must make to remain compliant with the ATO. Elect the period that the bonus relates to. A bonus based one week during the December holiday rush will relate to one pay event. In this case, merge the bonus with the weekly income and withhold income according to the PAYG tables. A bonus pertaining to an employee’s annual performance will relate to the year’s pay events. You must split the bonus across the year’s pay events and calculate the tax following the ATO guidelines.