Things have been pretty hectic on the farm over the last few months. Calving, mating, cropping, silage making all stretch the resources to the max.
Christmas can be a time to show some extra appreciation to your staff for their hard work.
There are many ways to reward your employees and knowing the tax implications may help you decide what benefits you give.
Rewards such as paying a bonus, giving gifts or vouchers, or putting on a Christmas function are all treated quite differently for tax purposes.
If you put on a Christmas function for your staff and families, whether a BBQ at your own property, or dinner at a restaurant, you are able to claim 50% as a tax deductible expense. If the function is a special morning or afternoon tea during work time, the cost of this will be 100% deductible.
Giving gift baskets or hams to employees is also common practice. These are generally 100% deductible. Just note that over certain thresholds Fringe Benefit Tax (FBT) may be payable. For example, employees gifts exceeding $300 each per quarter may deem the employer be liable for FBT.
Vouchers given to staff are also generally 100% income tax deductible and the same thresholds for FBT will apply as for other gifts. However, GST will often not be claimable as it is unlikely you will be issued with a Tax Invoice.
A cash bonus to an employee must be taxed as remuneration and PAYE is payable. So when offering the cash bonus, you need to be specific as to whether the amount is gross or net to avoid misunderstandings. This cash bonus will also affect the employees claim for Working for Families, Child Support payments and Student Loan repayments. So the employee may prefer to receive a gift, than a bonus.
If the bonus is payable at the employers discretion, it is unlikely to be included in the calculation for annual holiday pay. However, if it is linked to productivity, or referred to in the employment contract it will be used for annual holiday pay calculations.
In summary keeping within the gift thresholds will avoid FBT - with a cash bonus, you must deduct PAYE. A gift voucher is 100% tax deductible but generally you cannot claim GST. A physical gift is 100% tax deductible and you can claim the GST.
We advise you to talk with your accountant before making any decisions on rewarding employees, as the rules are complex.