Many business owners like to express their gratitude and thanks to employees and non-employees, such as clients, contractors and suppliers, by giving a gift.
Whether a gift for a special occasion such as Christmas or a gift just because, a common question raised is are gifts given to employees and non-employees claimable? The answer is not as straightforward as it may seem as it depends on the type of gift and who the gift is for. Learn more below including:
- Classifying gifts as entertainment or non-entertainment
- Gifts given to employees and their family
- Australian Tax Office (ATO) Complex Resolution Response regarding gifts
- Gifts given to non-employees such as clients, suppliers, contractors etc
- Check with your tax agent for clarification
Classifying gifts as entertainment or non-entertainment
Gifts are classified by the ATO as either an entertainment gift or a non-entertainment gift. Types of gifts classified as an entertainment gift include tickets to an event such as a theatre show, musical, movie or sporting event. Other types of entertainment gifts are flights, accommodation or a holiday. A membership to a club, such as a gym membership, is also classified as an entertainment gift.
Types of gifts classified as a non-entertainment gift include a hamper, bottle of wine or spirits, gift voucher, flowers, chocolates or other items given as a gift.
Gifts given to employees and their family
A minor benefit is a gift given to an employee that cost less than $300 (GST inclusive) and is provided infrequently. Entertainment gifts given to employees and their family that are minor benefits, are not tax deductable and no Fringe Benefits Tax (FBT) applies. Entertainment gifts given to employees and their family that are over $300, are tax deductable and are subject to FBT.
Non-entertainment gifts given to employees and their family that are minor benefits, are not tax deductable and therefore GST is not claimable and no FBT applies. For gifts over $300, FBT may apply and the gift is tax deductable.
Australian Tax Office (ATO) Complex Resolution Response regarding employee gifts
As confirmed by ATO Complex Resolution, their response is as follows: “The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits… any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.”
Gifts given to non-employees such as clients, suppliers, contractors etc
Some clients may not be able to accept gifts due to their business’s code of conduct. Gifts given to non-employees such as clients, suppliers, contractors etc. are not subject to FBT however the classification of the gift will rule whether the gift is or isn’t tax deductable. Entertainment gifts given to non-employees are not tax deductable and GST cannot be claimed. Non-entertainment gifts given to non-employees are tax deductable and GST can be claimed.
Check with your tax agent for clarification
It can be complex to grasp an understanding of tax deductions and FBT regarding entertainment and gifts for employees and non-employees. For this reason, it is important to contact a registered Tax agent or the ATO for detailed guidance. The information in this article is general information only.
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Disclaimer: The information in this article is general information only