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Christmas Accounting Considerations to Keep in Mind

Christmas tax and accounting

As we approach the end of 2015 our attention turns to rewarding our staff to show them that their hard work and dedication has been noticed and appreciated.

There are a variety of ways that employers can reward staff Christmas parties, bonuses, gifts and leave. These are great ways of boosting the morale of staff but they can be a headache when it comes to entering them into your accounting software system as you try to work out what is tax deductible and what isn’t.

Christmas Bonuses

A Christmas bonus is morale boosting for employees – especially if it is linked to their work performance over the year.

Of course you’ll need to check the books to make sure the bonus structure doesn’t break the bank, as it is important that the yearly bonus system you choose to adopt is fair to your employees and covers you and your business if you go through a challenging period. Choosing a fair system that rewards the most hardworking members of your workforce will help you to keep your best members of staff motivated and encourage them to stay at your company.

Christmas Party

When your staff have been working hard for you all year it can be nice to reward them with an office Christmas party. It allows staff to socialise, let their hair down and can be very morale boosting.

An important consideration, however, is that in the past the office Christmas party was tax deductible, but it no longer covers food, drink and entertainment.

You will find yourself having to pay Entertainment Fringe Benefits Tax if the cost per person is greater than $300 for the office Christmas party, so keep this in mind when setting the bar tab or choosing the venue/restaurant.

Christmas Gifts

Tax deductable Christmas gifts for staff

While employee entertainment in no longer tax-deducible, non-entertainment gifts up to the value of $300 per employee are still fully tax deductible and won’t incur Fringe Benefit Tax, so gifts are becoming an increasingly popular way to treat staff at Christmas.

Popular non-entertainment gift options include multi-store gift cards and Christmas food hampers. Staff love these kinds of useful gifts and the bonus for you is they fall under the $300 exemption from Entertainment Fringe Benefits tax.

Annual Leave

As the New Year approaches it’s important to keep track of your employees’ annual leave accrual and keep on top of each situation. You must allow employees to carry over their accrued annual leave to the next year, but there are two situations in which you can direct employees to take annual leave:

  1. If your business shuts down over Christmas you can direct all staff to take necessary annual leave to cover non-public holidays
  2. If they have accrued excess annual leave. ‘Excess’ annual leave differs from industry to industry and you can check out the excess in your industry here.

Keeping on top of excess leave is important in order to mitigate the risk that employees with excess leave will resign, leaving you having to pay out a large sum of accrued leave pay.

A good business management and accounting system like MYOB Exo allows you to integrate accounting and payroll functions to make this task much simpler.