Excerpt from JCC bulletin d/d 10/12/15.

KPMG has shared the following valuable tips on taxation of gifts to staff, clients and charities during the Christmas season…

During the holiday season businesses are bursting with excitement, decorating the office, rewarding employees who have performed well, giving gifts to valuable customers and planning that end of year staff function. We thought it appropriate to provide general guidance for common tax questions that come up at this time of year.

Cash awards, gift vouchers and non–monetary gifts to staff members

It is customary for employers to treat their employees with a cash award, gift voucher or non-monetary gift at Christmas time. These gifts may attract the standard payroll taxes and statutory contributions.

Employees will generally be taxed on cash awards. The same treatment will be applied where a gift voucher or non-monetary gift (for example, appliances, paintings and jewelry) is given to the employee (for example, for a long service award or other performance based award).  The employee may be taxed on the full value of the voucher or the cost incurred by the employer in providing the gift.  Companies may wish to reduce the tax cost to the employee when giving these gifts and should consult with their tax advisors for any suggestions to achieve this.

The costs incurred by the company in providing the gifts will be tax deductible for income tax purposes. However, the General Consumption Tax (“GCT”) on the expenses incurred in providing the gift is generally not recoverable as an input tax credit or a refund.

In addition, if the gifts are taken by the business owner or family members for personal use, the GCT costs of those gifts cannot be claimed as input tax credits or a refund. Further, where the business owner takes items from inventory which form part of his taxable activity, for personal use and/or gifts to family members, the business owner must account for output GCT on the cost of the item.

Staff appreciation function

Many companies tend to have a staff party, luncheon or other function at Christmas time. A company will incur some GCT on the items for the staging of such an event, such as rental of the venue, catering, decorations etc. While the expenses are deductible for income tax purposes, the GCT on the expenses may not be recoverable as an input tax credit or a refund.

Gifts provided to customers

It is customary for companies to give their most valuable customers gifts at this time of the year. This is ordinarily done to maintain the business relationship. The costs incurred to provide such gifts are deductible expenses in arriving at the company’s income tax liability. The GCT on the expenses, would also be recoverable as input tax credits.

Charitable contributions

Most companies tend to be engaged in some form of charitable contribution throughout the year, however, this is usually done in a more expansive way at this time of the year. To be tax deductible for income tax purposes, charitable contributions must be made to a registered charitable organization. It should be noted that the maximum amount of aggregate charitable contributions allowed as an income tax deduction for the tax year is restricted to 5% of the donor’s taxable net profit (excluding the contribution). This benefit is available to companies and self-employed persons alike. With some planning, it is possible to make generous donations while gaining tax benefits during the season.