Rewarding Your Employees with Tax-Free Benefits

Rewarding Your Employees with Tax-Free Benefits

Employees respond to an appreciation of their excellent work. It is a common practice followed by employers to reward their employees for motivating them and helping them maintain their good work. 

However, according to Australian Taxation laws, bonus or similar payment is not tax-exempt. You need to consult your tax advisor before offering tax-free employee benefits. Here are the things you should know. 

What Is Fringe Benefits Tax? 

A fringe benefit refers to a “payment” to an employee, not in the form of wages or salary. The employer pays the FBT on certain benefits they provide to employees or their families. The fringe benefits tax applies even if the employee benefits are provided by a third party on the instruction of the employer. 

Understanding Minor Benefit Exemption

The Australian Taxation laws offer minor benefits exemption that is exempt from fringe benefits tax. However, there are certain conditions for the small benefits exemption. 

  • The benefit should have a value of less than $300
  • The benefit is infrequent and irregular 

The exempt benefit provided in this case is exempt from FBT and exempt from the income tax in the hands of the employee receiving it. 

How Can Companies Use the Minor Benefits Exemption to Provide Tax-Free Employee Rewards?

Companies in Australia can use the minor benefits exemption to offer tax-free benefits to employees. The companies are required to provide a valid justification reason for the gift. Under this exemption rule, companies can give below $300 value to their employees. It would make these gifts eligible to get the minor benefits exemption provided by Australian taxation laws. 

Advantage of Tax-Free Gift Cards

One of the advantages of tax-free employee benefits is that both parties are not required to pay any tax to the government. Also, with the FBT exemption, the employee receives the full amount of the gift card. 

Also, there are no new entries in the yearly income tax statement for the employees upon receiving these gifts from employers. The employer also does not have to pay any tax to Australia to provide employee rewards. 

Different Ways to Give Tax-Free Rewards

  • Employers can present their employees with gift cards (with a value of less than $300). These cards can be used online or at brick and mortar stores to make purchases. Another way is to send a digital gift card that can be redeemed at e-commerce stores for online purchases. 
  • Employers can also present these tax-free rewards in the form of a gift certificate. The gift certificate can mention the name of the employee and the reason for their recognition. The design of the certificate can be customized. You can get free templates available for designing gift certificates. 

The digital gift certificate can be delivered instantly through email. Employers who want to present gift certificates to employees can get print-ready PDF files that can be used to create physical gift certificates. 

Employers are searching for ways to reward their employees. The post mentions easy ways to pay employees without attracting attention and inquiries from the taxman.