It's Christmas time, and you may be considering paying a Christmas bonus or providing a gift to your employees for their hard work this year. You may also have a celebratory party or event planned for your team. Here are a few tips to consider when planning and recording your Christmas festivities and giving.
Paying a Christmas Bonus:
Although paying a discretionary Christmas bonus does not seem like ordinary earnings, the ATO classes the bonus just like any other ordinary payment. This means that superannuation and PAYG withholding (tax) will apply to the bonus payment.
With this in mind, we suggest being very clear when communicating the after-tax bonus amount with staff. For example, a $500 bonus promised to a staff member can quickly turn into $350 in the hand once taxation is applied. Also, remember to factor in the superannuation cost (11% in the 2024FY) to the business when working out the bonus amounts.
Processing a Bonus in Xero: Like any other salary payment, Christmas bonuses must be processed through Single Touch Payroll. We suggest running an unscheduled pay run to process the employee bonuses.
Remember to use a Bonuses and Commissions category pay item (or set one up in Xero Organisation Settings > Payroll Settings > Pay Items) to record the bonus on your employee's payslips. The bonus will be subject to PAYG withholding (tax) and superannuation.
Gift Card or Gift: Gift cards and gifts are a popular choice at Christmas time and can be a more tax-effective way to thank your employees than a cash bonus. Occasional gift cards or gifts provided to employees that are under $300 in value are generally free from Fringe Benefits Tax (FBT) under an exemption called the "Minor and Infrequent Benefits Exemption".
Minor non-entertainment benefits (such as gifts, hampers and gift cards unrelated to entertainment experiences) may also be eligible for a tax deduction and GST credit.
Christmas parties are usually celebratory events involving food and or drinks and are considered an "entertainment" style event for FBT purposes.
If you spend more than $300 per person providing the food, drink and entertainment for the party, you will likely have triggered FBT at 47% unless an additional exemption applies. To ensure you stay away from FBT, it is wise to keep the per-person cost to less than $300 per person and have it fall under the "Minor and Infrequent Benefit Exemption". Partners of employees receive their own $300 threshold.
When recording the cost of the Christmas event in your accounting software, please record the transaction as GST-free.
End of Year Checklist:
Our friends at Cubiko have prepared some great year-end resources to keep you organised this holiday season. Check out this handy downloadable end-of-year checklist and practice closure poster. The checklist takes you through all the important practice considerations such as communicating closures to patients, checking that Drs who are away have no appointments booked and updating your online hours.
We wish you a safe and happy Christmas holiday season!