Is the IRD playing Grinch by taxing Christmas cheer?
Is the IRD playing Grinch by taxing
There is no such thing as an easy year in farming and after 12 months of fighting fluctuating commodity prices, legislative curve balls and more often than not the weather, agribusiness owners and workers alike have well and truly earned a pat on the back.
However, before firing up the BBQ and cooling off a few stubbies for the work Christmas shout, Tony Marshall, agribusiness tax specialist for Crowe Horwath, warns that there are some tax considerations we should be aware of when we are budgeting for the work Christmas party or shopping for employee gifts.
There are two tax regimes that can apply to the expenditure incurred for the Christmas party: the entertainment tax regime and the fringe benefit tax (FBT) regime. Marshall explains, “The entertainment tax regime takes precedence and applies to all situations where the employee does not choose when they receive or use the benefit, or they receive or use the benefit in the course of their employment duties.”
Marshall continues, “Any expenditure that is classed as ‘entertainment’, for example a staff Christmas BBQ in the woolshed, would be captured under the entertainment tax regime and the associated costs would be only 50% deductible for income tax purposes. An adjustment is also required to the GST that can be claimed on the expenditure, with that also being limited to 50%.”
Marshall notes that even the most well-intentioned Christmas gift might have tax implications under the FBT regime. “An employee’s Christmas gift will, in the first instance, be subject to FBT. However, for most Christmas gifts it is likely that the exclusion for unclassified benefits will apply.” Marshall expands, “Generally, you would qualify for this exclusion if the total value of all gifts provided in that quarter does not exceed $300 per employee and the total value of all gifts provided to all employees in the 12 months ending 31 December does not exceed $22,500.”
Marshall offers a ray of sunshine and festive cheer as he notes there is an exception for business tools, which if they are presented as gifts to deserving employees are then exempt from FBT up to the value of $5,000. For example a new hand piece, quad bike helmet etc. provided that the gift is used by the employee in fulfilling their employment duties.
That might all seem a bit complicated for a few bangers and beers in the lead up to Christmas, but if we only want a visit from Santa and not the taxman it pays to be aware of what your obligations are.