Outlined below are a range of items that can be used to say “thank you” to key employees without a FBT cost. 

Employee gift ideas – tax free

In the first instance, any gifts provided by an employer to an employee will be subject to FBT to the employer.  However, items that can be provided tax free include:

Minor Benefits

These are items not given frequently or regularly throughout the year and have a value of less than $100 (GST inclusive).  Examples of such items could include:

• hampers
• bottles of wine
• shopping vouchers
• flu injections

These items and other gift ideas can be given to staff free of any FBT.  An employer would generally be able to claim full tax deductions and full input tax credits in regard to these gifts.  So next time it is an employee’s birthday, an employer may need to think twice about giving them that bottle of Grange Hermitage and substitute that particular bottle of wine with a less expensive one.

Exempt Benefits

These are benefits which are specifically free from any FBT and as such, offer significant savings opportunities to employers. 

The following items are examples of benefits that can be given to employees tax free: 

• laptop computers (only one per FBT year)
• electronic diaries or personal organizers or palm pilots
• briefcases
• calculators
• mobile phones (only where there is predominate business use)
• memberships of an airline flight lounges
• taxi travel to and from work

The costs of such items are fully tax deductible to the employer and full input tax credits are also available.  Accordingly, these type of gifts ideas could be a great way of rewarding valued employees and as such, employers should certainly consider providing these benefits as employee incentives.  For example, where mobile phones are used mainly for business, an upgrade to the latest model with camera, games, Internet connection etc, might be an ideal way of rewarding key staff.  Note, the primary use of such a phone must be as a mobile phone.  The other purposes, must be incidental.  Further, providing a bowl of fruit in the tea room for staff not only provides nutritional benefits, it also does not come within FBT.

In-house benefits

An employer can also gift employees with $500 worth of ‘in-house benefits’ throughout the year tax free.  ‘In-house benefits’ are benefits, which an employer sells or supplies to third parties in the ordinary course of its business.  For example, an employer, which manufactures or sells clothes could give up to $500 worth of such clothes to an employee tax free.  The cost of such items to an employer would be tax deductible and input tax credits would be fully claimable.

What about a party – tax free?

The question of FBT and entertainment is a nightmare for many small businesses. 

Generally, a party for employees would, in the first instance, be subject to FBT.  However, a party would be FBT free under the following circumstances: 

1. the party is for employees only and the cost per employee is less than $100 (GST inclusive).
2. the party is held on the employer’s business premises.

However, under (1) and (2) above, the cost of the party for the employer would be non-deductible for tax purposes and there would be no entitlement to input tax credits.

Further, those parties outlined above will not be tax free where an employer has elected to adopt the 50/50 method (ie. 50% subject to FBT and tax deductible) for valuing meal entertainment.

Employer’s shopping list

The table below provides an indicative list of gift ideas that corporate employers can give to their employees FBT free.

EMPLOYER’S SHOPPING LIST

2004/05

*     Assumes employer is a corporate taxpayer

• The above list is provided for illustrative purposes only.  It is not intended to be an exhaustive list and does not represent the true outcomes in all cases.
• All ‘costs’ are GST inclusive amounts.

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