Nine Accounting Considerations for Christmas

With the end of 2023 nearing, the focus shifts to recognising and appreciating the hard work and dedication of our staff.

Employers have various ways to reward their teams: Christmas parties, bonuses, gifts, and leave. While these boost morale, they often pose accounting challenges when determining tax deductibility.

Christmas Bonuses

A Christmas bonus can significantly uplift employee morale, especially if tied to their yearly performance.

Ensuring the bonus structure is financially feasible is crucial. It should be fair to employees yet safeguard your business during challenging times. A balanced system that rewards diligent employees fosters motivation and encourages retention.

Christmas Party

Recognising a year of hard work with an office Christmas party is a delightful gesture, fostering camaraderie and boosting morale.

However, it’s essential to note that while the office party used to be tax deductible, recent changes exclude deductions for food, drink, and entertainment. Keep in mind the Entertainment Fringe Benefits Tax if per-person costs exceed $300 to avoid unexpected expenses.

Christmas Gifts

Tax-deductible gifts for staff

Entertainment expenses might not be tax deductible anymore, but non-entertainment gifts up to $300 per employee remain fully deductible without incurring Fringe Benefit Tax. Hence, gifts like multi-store gift cards or Christmas food hampers are increasingly popular and practical, falling within the tax exemption limit.

Annual Leave

As the New Year approaches, managing accrued annual leave becomes crucial. Allowing employees to carry over their accrued leave is necessary, but you can direct leave in two situations:

  • If your business shuts down during Christmas, employees can be directed to take annual leave to cover non-public holidays.
  • If they’ve accrued excess annual leave, industry-specific guidelines define ‘excess.’ Monitoring excess leave mitigates the risk of employees resigning, leaving a significant accrued leave payout.

Effective business management and accounting systems, such as MYOB Exo, offer integrated functions, simplifying tasks like payroll and leave management.

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