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Tax exemption available for gifts to employees

This applies to:

Employees of companies only, includes shareholder employees, but not LTC shareholders unless they are paid a PAYE salary (if you’re unsure, ask us)

Background information:

Normally, if a company provides a benefit to an employee (such as a gift), it is subject to Fringe Benefit Tax (FBT). This means that the value of the benefit provided to the employee is taxed (at the FBT rate of 42 - 49%). A FBT return must be filed and the FBT tax must be paid to the IRD. 

However:

There is a $300 exemption per employee, per quarter from paying FBT. So -  if you provide free (gifts and prizes), subsidised or discounted goods and services, this exemption may apply.  

For a business with two shareholder employees, this could be $600 per quarter, or $2400 per year of gifts (such as supermarket vouchers), that would be a tax deductible expense for the business. The tax savings on this per annum is $300 of GST and $700 of income tax. 

However, if the value of the benefits for an employee goes over $300 for a quarter, the full value of the benefits is subject to FBT - the exemption isn't deducted first. For this reason, a supermarket voucher per employee per quarter limits the exposure (be sure there are no other benefits claimed during the quarter).

If you’re thinking of following this strategy its best to:

  1. Register the company for Fringe Benefit Tax
  2. File quarterly returns (IR427) claiming the maximum exemption per quarter. 
  3. Keep tax receipts of the gifts or benefits provided to employees.
  4. Ensure the gifts or benefits still meet the general principle for deductible expenditure

Would you like help with this?

If you’d like assistance in setting up this process please give Tim or Jane a call to have a chat on 07 8234980.

This material has been prepared for informational purposes only, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.



 

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