As we approach the silly season, many employers are looking to recognise and reward their staff with Christmas parties, bonuses, gifts and leave. But it is important to know your obligations and to ensure expenses are correctly entered into your accounting software.
Here are some of our top Accounting tips for this festive season:
CHRISTMAS PARTIES AND GIFTS
After another year of abnormality, a Christmas party or gifts may be the way employers say thank you. We remind employers that this could create a tax liability.
Parties and gifts are considered a benefit of employees and accordingly those above certain thresholds are captured by the FBT rules. These rules can take into account factors such as where the food and drinks are served, who the guests are, and how much is spent.
We suggest following these key rules to avoid incurring FBT:
Stay below the minor benefit threshold of $300 per benefit – whether per gift or cost per head of the party (FBT exempt benefits)
Hold celebrations on business premises (exempt property benefits)
Only invite current employees or keep the costs for associates under $300
Records, records, records - accurate record-keeping is essential, especially if the business is claiming an exemption from FBT
Also bear in mind businesses can’t claim a tax deduction for the costs if they are not subject to FBT nor can businesses claim the GST on the expense.
CHRISTMAS BONUSES
Employers
Before considering employee bonuses, ensure your business is in a good position to do so. Keep in mind there may be reduced revenue over this period with increased expenses such as leave loading, Christmas parties and client gifts.
Remember to treat bonuses like any other wage payment (super and PAYG still apply).
Bonuses are included as part of an employees wage, therefore will be considered as ordinary time earnings subject to Super Guarantee of 10%. Tax is withheld pro rata for the earnings over the year. Depending on your State, Payroll tax may also be applicable to bonuses.
Employees
Individuals need to be aware that bonuses form part of your taxable income and will need to be included in your Income Tax Return. This should be recorded automatically in the payroll system of your employer and included as part of the Payment Summary at year end.
ANNUAL LEAVE
As we head toward the New Year, it’s important to keep track of employees’ annual leave accrual. Whilst employees can continue to carry over their annual leave, there are situations in which you can direct employees to take annual leave:
Office Closures
If your business shuts down over Christmas you can direct all staff to take necessary annual leave to cover non-public holidays
Excess Leave Accrued
'Excess’ annual leave may have accrued for your employees (what is defined as an excess can differ from industry to industry). It is important to keep on top of excess leave in order to avoid having a large payout in the case that a staff member moves on – this may be a good time of year to discuss taking the excess leave with employees.
CHRISTMAS CASHFLOW
Be proactive in your planning for the Christmas/New Year period. Although many service businesses start to slow as we head into the silly season, unfortunately much of our spending at this time of year increases with extra expenses (i.e. staff Christmas parties, bonuses, client entertainment and gifts). Ensure you are prepared by:
Utilising Accounting Software:
Be across your incomings and outgoings with Cloud accounting software such as Xero.
Proactive Invoicing:
If you usually issue your invoices at the end of the month, be proactive during December and issue invoices as soon as a job is completed. This will get your payment process in motion for to improve your Christmas cashflow.
Be aware of ATO Deadlines:
The ATO offers a BAS extension for the December quarter which pushes the due date back to February, helping reduce the cashflow pressure over Christmas. Whist this extension can be a welcomed offer, don’t forget that there’s no March extension so you’ll have 2 BAS payments closer together.
Please contact our office should you require any further advice as we head into the festive season. We have really enjoyed celebrating our clients’ successes throughout the year and wish everyone a safe and prosperous Christmas as we look forward to 2022!