The end of the year is coming and you might be thinking of a way to say thanks to your staff for their efforts this year.
If you want to give your staff a gift, then think about the rules that apply. Generally, if you give something to your staff it is classed as a ‘fringe benefit’ and you may be taxed on it. But low dollar-value and irregular gifts can be provided to employees without an FBT (fringe benefits tax) charge for the employer or an income tax charge for the employee. This is known as a ‘materiality’ rule. The ATO, or at least the legislature, recognizes the reality of day to day business life and employment relationships, and is basically saying “we are not concerned with irregular low dollar value gifts and will not seek to tax them in any way”.
Gifts are a great way to lift employee morale and show appreciation of effort. Employees respond more to empathy and appreciation than just money. A $299 shopping voucher for each employee at Christmas, with a nice note, and some public recognition is a nice way to say “thanks, we appreciate you”.
And its tax free for your staff (but tax deductible for you), which makes it even nicer.
Other ideas include a bottle of spirits, perfume, a food hamper, a CD, a book or a clothes or toy shop voucher. The gift does not have to be consumed at work, and there is no reason why the employee cannot “re-gift” the gift to someone else who may appreciate it even more. Read here for some practical tips on re-gifting unwanted presents.
Shopping vouchers are a great idea. A voucher to a widely available retailer (think supermarket or department store) is almost as good as cash. Your staff can spend the voucher on a wide variety of products or services – perhaps even on filling the Santa sack for their own kids. This takes away the risk of getting it wrong (say, giving alcohol to someone overcoming a drinking problem) and is appreciated more by your staff.
What does the ATO say?
We asked our licencee, Dover Financial Advisers, what the tax office thinks. Dover is a registered tax adviser, so they are allowed to tell us their opinion.
The ATO says any one gift must be “modest in value”, valued under $300 per gift, and must not specifically relate to the employee’s work performance. So, you can’t just give the gifts to staff who met sales targets, or something like that. The gift is just that: a gift. There should be no more than four special occasions (ie gifts) per employee per year.
This means if you have, say, three staff you could provide say three gifts with a market value/cost of about $900 each and a total market value/cost of $2,700 a year. This is a great way to show your staff you care and you appreciate their good efforts. Birthdays and the Christmas and Easter breaks work well, but its never a bad time to show your appreciation.
You can read the ATO’s views on minor benefits here: ATO view on the minor benefits exemption.