It’s been another challenging year, particularly for retailers, many of whom have either had employees working on the frontline of New Zealand’s COVID-19 defence, or been unable to open in the face of the country’s longest-ever lockdown.
Employers in the sector may be looking to find ways to reward and thank their staff for their hard work and dedication, especially as we approach the busy holiday season. While giving gifts or bonuses is a great way to show you care, the last thing employers want is to have their good intentions derailed by a surprise tax obligation.
The type of gift you give will determine the tax treatment:
|Type of Benefit
|General Tax Treatment
|Free, subsidised, or discounted goods
|Vouchers (not redeemable for cash)
|Vouchers (redeemable for cash)
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.
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 provided 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.