It’s getting to that time of year again, and if you’re like us you haven’t bought christmas presents for family, yet let alone for your staff. It’s time to look at how these are treated for tax purposes!
What are staff benefits? Are they taxable?
Generally any non cash goods or services provided to employees (such as motor vehicles) are treated under the Fringe Benefit Tax ("FBT") rules, which stings up to 49.25%.
However there are exceptions when the benefits aren’t motor vehicles/ transport, superannuation or employee loan related. The exception we’re looking at is the “de minimis” or “small fry, wink wink” exemption, which gives you $300 per quarter FBT free to spend on employee gifts (or “unclassified benefits”) per quarter (if you are a quarterly filer of FBT), or $1,200 per year (if you are an annual filer). This applies up to $22,500 in total for the last four quarters, no matter how many employees you have. If you spend over these amounts you’ll need to register for and pay FBT on the taxable value of gifts given.
You’ve five employees and this year everyone got a night at a fancy hotel as a birthday gift that cost $400. You now want to buy them an souped-up iPad each for xmas (Retail $1,249). You’re not a filer of FBT, but you’re the coolest boss ever!
Total $1,649 per employee, $8,245 in total
You’ve gone over the $1,200 limit in the last four quarters so you’ll need to register and file for FBT. Note that FBT is payable on the whole amount of $8,245, not just the amount above the threshold. So those iPads could have just cost $2,061.13 each! But you’re still a cool boss!
In this case it would be advisable to spend under the $1,200 limit for the last four quarters. Maybe that $749 iPad would be good enough? ($400 + $749 = $1,149)
To satisfy IRD requirements, instead of writing “staff gifts” in the “Why” field in Xero, enter who the staff was & enter the staff as a contact.
Deductibility of entertainment rules still apply, so before you go looking to pull out the Bollinger and Cristal at the staff christmas lunch, entertainment may only be 50% deductible depending on what it is. That’s for another post.