Christmas Parties, Gifts and Donations

Clients’ and Employees’ Gifts

Christmas is a time for businesses to take the opportunity to express appreciation to their clients and employees for their loyalty and support. 65% of employees feel that recognition improves engagement and helps build trust to improve their relationships with employers. However, for an employer, there is more to consider beyond giving a gift to employees or organising a Christmas party.

As Christmas parties and gifts are typically expenses that come across during this time, these transactions have very specific GST and Tax implications. Therefore, it is paramount to record them correctly in your Accounting Software. This is particularly important when entertaining employees or buying gifts for them, as Fringe Benefit Tax may also apply.

When organising Business Christmas parties, or looking at buying gifts for clients or employees, the following factors should be taken into account:

Christmas Parties

• The cost per head
• Where and when the party is held
• Who is invited
  (Employees, Associates, Clients)

Christmas Gifts

• The recipient (Clients/Employees)
• The type of gift
• The gift amount (Employees)

Christmas Bonuses

Employers can also pay Christmas Bonuses to their employees. It is essential for employers to know that Christmas Bonuses are subject to both  PAYG and Superannuation. Therefore, employers should budget the additional applicable percentage of Superannuation to the cost of the Bonus.

It is also important to inform employees that the amount of the Bonus is gross, and tax will be deducted from this payment. However, Bonus Payments are not taxed like standard wages. The tax calculation can be marginalised over 12 months. This method can substantially reduce the calculated tax on this annual lump sum.

Donations and Giveaways

During this time, some businesses feel inspired to donate money to charities. Occasionally, they may also involve their employees by introducing Workplace Giving Programs into their organisations.

Resources

We have created a range of comprehensive User Guides to help you understand the correct Tax and GST implications for these activities and set them up properly in your Accounting Software.

Want to understand the correct Tax and GST implications when purchasing clients’ or employees’ gifts and entertainment?

Tax Implications on Meals, Gifts, Travel and Entertainment

Want to learn how to tax Annual Bonuses?

How to set up bonus and commission pay items in Xero

Want to learn how to set up a Workplace Giving Program Pay Deduction?

How to set up a workplace giving program deduction item in Xero

References

ATO – Fringe Benefits and Christmas Parties

ATO – Minor Benefits Exemption

ATO – Commissions, bonuses or similar payments

ATO – Tax table for bonuses and similar payments

Disclaimer

This blog and attached resources are of general nature designed for informational and educational purposes only. They should not be construed as professional financial advice for your individual business. Should you need such advice, consult a licensed financial or tax advisor.