Payroll, Leave & Cash Flow
As the festive season approaches, many businesses face the annual juggle of staff leave, bonus payments, and cash flow. So, here a few reminders to keep things smooth:
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Check leave balances early. Encourage employees to book leave now to avoid scheduling headaches.
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Review payroll obligations. Ensure holiday pay and bonuses are processed correctly and that PAYG withholding is up to date.
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Plan your cash flow. If your business slows down in December–January, consider early invoicing or adjusting payment terms to keep cashflow steady.
If you’re planning a holiday shutdown, make sure all super and payroll processing is complete before you close.
Can you claim a tax deduction this Christmas?
You want to thank your staff and clients, but can you claim a tax deduction for doing so?
In short: it depends. Christmas parties, whether held on your premises or elsewhere, are generally not deductible. Whilst, gifts to clients and staff may be deductible, if they meet specific criteria.
Staff Gifts
If you give a benefit (for example a gift) to staff it may be treated as a fringe benefit and subject to Fringe Benefits Tax (FBT). To avoid this (via the minor benefits exemption) and expense still be deductible the gift needs to meet the following criteria:
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have taxable value of less than $300 (including GST) per person;
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be provided infrequently or irregularly, not on a regular basis;
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have a value that is readily determinable;
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not be wholly or principally a reward for services;
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not be classified as entertainment (for example: tickets to sporting events, theatre or cinema; vouchers to restaurants; holidays).
Because such gifts fall into the “entertainment” category, they will attract different tax treatment.
Examples of gifts that may satisfy these criteria: unopened bottles of alcohol (for consumption off-site), flowers, or hampers.
What about Christmas parties?
For parties: whether held on your premises or not, these will not be tax deductible because they are considered to be entertainment in nature and therefore, do not meet the criteria outlined above.
Client Gifts
Gifts to clients may be deductible, but only if they are given for the purpose of producing future assessable income. The ATO gives this example:
Sally is carrying on a renovation business. Sally gifts a bottle of champagne to a client who had a renovation completed within the preceding 12 months. Sally expects the gift will either generate future business from the client or make them more inclined to refer others to her business. Although Sally got on well with her client, the gift was not made for personal reasons and is not of a private or domestic character. Sally is entitled to a deduction under section 8-1 of the ITAA 1997.
Enjoy the start of the festive season and remember – a little planning now can make tax time easier.
If you have any questions, please do not hesitate to contact us.