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Article:

A gift worth giving: The Tax Implications of Christmas Gifts to Employees

30 November 2020

Given the challenging year we have had particularly for retailers, employers in the sector may be looking to find ways to reward their staff for their hard work and dedication to thank staff as we approach the busy holiday season. While showing staff appreciation with gifts or bonuses, the last thing employers want is to have their good intentions derailed by a surprise tax obligation. 

To help you understand the tax implications of giving gifts to employees, read on...

Type of Benefit Examples General Tax Treatment
Free, subsidised, or discounted goods
  • Electronics such as cell phones or tablets
  • Grocery items such as a Christmas hamper (if the employee can choose when to enjoy them)
  • Application of Fringe Benefit Tax (FBT) as an unclassified benefit. Generally speaking, there is no fringe benefit if the employee pays at least what the cost was to the employer
  • De-minimis exemption applies (see below)
Vouchers (not redeemable for cash)
  • Spa voucher
  • Department Store voucher
  • Grocery voucher
  • Restaurant voucher
  • “Prezzie cards”
  • Usually gives rise to a FBT liability as an unclassified benefit
  • De-minimis exemption applies (see below)
Vouchers (redeemable for cash)
  • Travel card
  • Taxable under the PAYE rules as a cash payment i.e. should go through the payroll system
  • Does not give rise to a FBT liability
Cash bonuses  
  • Taxable under the PAYE rules as a cash payment i.e. should go through the payroll system (1) 

1. Bonuses and Holiday Pay – The cash bonus could be excluded from holiday pay calculations, provided it does not form part of the employment agreement and is truly ‘discretionary’ i.e. the employer is not bound by the employees employment agreement to pay the bonus. However, where the bonus is ‘non-discretionary’ (e.g. performance based), the bonus would generally form part of employee gross earnings and impact holiday pay calculations.


De-minimis exemption

Under the FBT rules, most employee gifts (other than cash, cash redeemable vouchers or food and drink subject to the entertainment regime) would be considered unclassified fringe benefits.

However, there is a de-minimis exemption which allows employers to provide unclassified benefits to employees without triggering a FBT liability. This way, employers can provide staff gifts and stay out of the FBT regime, provided both of the following criteria are met:

1. Total taxable value of unclassified benefits provided to a single employee is not more than:

  • $300 per quarter (for employers that pay FBT quarterly); or
  • $1,200 per annum (for employers that pay FBT annually); and

2. Total unclassified fringe benefits provided to all employees is not more than $22,500 per annum.
 

If the value of unclassified benefits is exceeded for either criterion, then FBT is payable on the total value of all unclassified benefits gifted to employees i.e. the first $22,500 is not exempt.

We note that the de-minimis exemption does not apply to cash benefits (such as bonuses or cash redeemable vouchers), therefore there can be an advantage from providing employees with unclassified fringe benefits when the de-minimis criteria is met.


For more information on unclassified fringe benefits see the following article: Fringe Benefit Tax on Gifts to Employees. 

For further advice on gifts to employees this holiday season, please contact your local BDO adviser.