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Gift giving: A taxing task

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You shouldn't have! The Good, the Bad and the Ugly of Gift Giving

by Bev Barnfather

“In this world nothing can be said to be certain, except death and taxes.”

...so said Benjamin Franklin. However, since the scandal of the Panama papers it’s become apparent that, for some, taxes may not be as much of a certainty as Benjamin believed. But, while tax evasion cannot be condoned, effective tax minimisation should be a sharp chisel in the financial tool kit of every good business.

Let's talk about the tax implications of gifts for staff and business connections. Google the ATO on this and you will get pages of information guaranteed to solve any insomnia issues you may have. So to make understanding this a little less taxing (forgive the pun...couldn’t resist), we have created a ready reckoner.

Use the chart below to see which gifts are cost effective. Follow these three steps:

  1. Determine if the proposed gift is classified as an entertainment gift or not. Entertainment expense can be tickets to the theatre, a movie, sporting events or holiday flights or accommodation.
  2. Decide if the gift is to be over or under $300
  3. Identify the recipient (staff or business connections)

Gift giving: A taxing task

* Note that FBT is only applicable to employees (under certain circumstances), so all gifts to clients, customers and suppliers are FBT free.

Remember that ATO gift guidelines do not apply to sole proprietor or partners in a partnership as you cannot be an employee of yourself.

Thinking of movie passes for a staff gift? Think again. The ATO specifically states “that movie passes provided on an ad hoc basis may not be considered a minor benefit.” In other words, it may not be as tax effective as you thought.

And the most cost effective option is.... non entertainment gifts under $300! Keep this in mind when planning gifts for staff and business connections and if using a gift supplier, ensure they are knowledgeable concerning possible tax implication for your business.

Yours in gifts worth giving,
Bev

PS: The usual disclaimer applies: this information is general in nature for Australia and should not be relied upon as your sole information source so please consult with your taxation professional.

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