If you don’t want to pay tax on Christmas, then you should read this blog where we’ll discuss a few tips to help you avoid giving the ATO a bonus this festive season.
Keep Team Gifts Spontaneous
$300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will lead to a gift to the ATO at a rate of 47%. To be eligible for a minor benefit, gifts also have to be ad hoc – no monthly gym memberships or giving one person more than one gift voucher amounting to $300 or more. Gifts of cash from the company are considered salary and wages – PAYG withholding is triggered and the amount is normally liable to the SG. Apart from this, consider what will be of value to your team. The most appreciated gift is the one that is valuable to the individual. Giving a bottle of wine to someone who doesn’t drink, or time off to someone with a number of leaves, isn’t going to get much in the way of goodwill. A sincere personal message will often leave a greater impact than a generic gift.
The FBT Christmas Party Crunch
To avoid tax on your work Christmas party, you need to host it in the office on a workday. As a result, the Fringe Benefits Tax (FBT) will not apply irrespective of how much you spend per person. Also, taxi travel that starts or finishes at a place of work of an employee is exempt from FBT. If your work Christmas party is not in the office, then make sure to spend less than $300 per person to avoid paying FBT. If you organise a party out of your business premises, then taxi travel can take a separate benefit from the party and any other gifts you’ve given. If entertainment is provided to employees and an FBT exemption is applicable, you can’t claim tax deductions. If your work Christmas party goes above the $300 per person, then minor benefit limit, you will have to pay FBT but you can claim a tax deduction for the cost of the event.
Don’t Take Your Clients Out for Lunches and Give a Gift
If you take your client out for lunch, it will not be tax deductible and you will not be able to claim the GST back. A show, restaurants, corporate race days, and golf all fall into the entertainment category. On the other hand, if you send a gift to your client, then the gift is tax-deductible as long as there is an expectation that the business will benefit. From a marketing point of view, if your budget is low, it’s better to focus on the clients that are valuable to your business rather than spending a small amount on every client regardless of value. You could also make a donation on behalf of your clients (where your business takes the tax deduction) or for your clients (where they receive the tax deduction).
Charities Love Cash
Charities love cash. They don’t have to spend any of their valuable resources to receive it – unlike a lot of charity dinners, auctions, and promotional campaigns. And, from a tax point of view, it’s the safest way to ensure that you or your business can claim a deduction for the full amount of the donation. There are some rules to giving to charities that make the difference between whether you will or will not receive a tax deduction. Buying any kind of merchandise for the donation that may include teddies, balls, biscuits or you purchase something at an auction, then it is not deductible. The donation must be a gift.
If you are planning to provide a cash bonus to your team rather than a gift voucher or other item of property, then don’t forget that this will be taxed in the same way as wages and salary. A PAYG withholding obligation will be triggered and the ATO’s perspective is that the bonus will also be considered ordinary time earnings (unless it relates specifically to overtime work) which means that it will be liable to the superannuation guarantee provisions.
Tax on Super Balances Above $3m Hits Parliament
Legislation allowing an additional 15% tax on earnings on super balances over $3m is before Parliament. While not a concern for the average worker, if legislated, those with significant property or other illiquid assets in their superannuation fund are most
at risk, for instance, business operators and farmers who have their business property in their SMSF. The problem is how the tax is calculated. The tax captures the growth in the member’s superannuation balance over the financial year. It captures both:
- realised gains from the assets’ sale
- unrealised gains triggered when the value of superannuation assets increases.
In case, the total super balance of the member has decreased, the loss can be offset against future years. The ATO calculates the tax each year. Members with super balances above $3m will be tested on 30 June 2026 for the first time with the first notice of assessment expected to be issued to those affected in the 2026-27 financial year.
If you intend to be affected by the new tax, it is crucial to speak to your financial adviser. While keeping assets within superannuation will be the best option for many from a tax and planning perspective, it’s vital to make sure that you’re in the best possible position.