It is relatively common for employers to buy and give vouchers or gift cards to staff (for example, as a gift or reward). This article looks at the GST and FBT implications that arise.
Vouchers bought and given to staff
Many employers provide vouchers or gift cards to staff. There are various reasons why vouchers/gift cards may be provided to staff but some of the more common examples include:
- As a gift – for example, a birthday or Christmas gift, or to celebrate an event such as the birth of a child, marriage (maybe even a divorce!);
- As a reward – for example, for a promotion, achievement (employee of the month, or exceed sales targets).
Whatever the reason, employers need to consider the tax implications – particularly GST and FBT.
GST treatment of vouchers
There are special GST rules for vouchers. These are found in Division 100 of the GST law. We also note that the ATO has issued a ruling on GST and vouchers – refer to GSTR 2003/5.
The term ‘voucher’ is defined for GST purposes as:
‘any … voucher, token, stamp, coupon or similar article … the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms …’.
Based on the above, a gift card can be a voucher.
The default position is that a supply of a voucher will be a taxable supply where the requirements of section 9-5 are met. However, where the conditions in Division 100 apply the supply of the voucher is generally not treated as a taxable supply.
Essentially, a voucher is not subject to GST when sold where the following conditions exist:
- the voucher has a monetary value stated on it;
- the amount paid for the voucher does not exceed the monetary value stated on it; and
- when the voucher is redeemed the holder is entitled to supplies up to the stated monetary value of the voucher.
The ruling refers to these types of vouchers as a ‘face value voucher’.
In simple terms, where a person goes into a store and buys a face value voucher, that sale will not be subject to GST. Again, in simple terms (and for the purposes of this article), all ‘other vouchers’ would be subject to GST.
Therefore, where an employer buys vouchers/gift cards which are face value vouchers with the intention of providing them to staff, as such vouchers are not subject to GST the employer is not entitled to claim any GST credits for the acquisition. The GST treatment may also be important from an FBT perspective (see comments below regarding Type 1 and Type 2 benefits).
There is no dollar limit from a GST perspective. So, whether the voucher/gift card is for $100, $250 or $1,000 the same GST treatment applies.
By way of summary, from a GST perspective:
- face value vouchers are not subject to GST;
- all other vouchers are (assumed to be) subject to GST.
FBT treatment of vouchers
In its simplest form, where an employer buys a voucher/gift card and provides it to an employee, the FBT rules apply. However, the issues that arise under the FBT rules are a little more involved.
Type of fringe benefit
Depending on the type of voucher being provided (or the things that the voucher entitles the holder to redeem), it could be that the voucher falls into different fringe benefit categories. While most gifts of vouchers are likely to fall within the ‘property’ category, care needs to be undertaken.
By way of example:
- A voucher issued by a store (e.g. Bunnings, Coles, David Jones) would fall within the ‘property’ fringe benefit category (and would also generally be a face value voucher).
- Movie tickets (technically a voucher, but not a face value voucher) would fall within the ‘entertainment’ fringe benefit category.
- A voucher issued by a restaurant and that can be redeemed for meals at the restaurant would fall within the ‘meal entertainment’ fringe benefit category. (These may or may not be face value vouchers. By way of simple example, if redeemable for say up to $200, then it will be a face value voucher. If redeemable for ‘two free main courses’, then it would not appear to be a face value voucher.)
Type of Entity
There is also a need to consider the category of employer that is providing the fringe benefit. Broadly, the employer can either be:
- A tax-exempt body; or
- All other employers (non tax-exempt, or taxable employers).
The combination of employer type and fringe benefit type is important due to FBT exemptions/concessions available to certain tax-exempt bodies.
Tax-Exempt Body Entertainment Benefits
A ‘tax-exempt body entertainment’ fringe benefit arises where:
- a person (a ‘tax-exempt body’) incurs non-deductible exempt entertainment expenditure;
- the expenditure is (wholly or partly) in respect of the provision of entertainment to an employee or associate; and
- the entertainment is in respect of the employment of the employee.
Therefore, if a tax-exempt entity acquires a voucher to give to an employee which is classified as either an ‘entertainment’ fringe benefit or ‘meal entertainment’ fringe benefit, then it will be a ‘tax-exempt body entertainment fringe benefit’.
Vouchers that fall within the ‘tax-exempt body entertainment’ category will not qualify for exemption under the minor benefit exemption.
The Minor Benefit Exemption
Broadly, the minor benefit exemption is available where:
- the value of the benefit is less than $300; and
- it is unreasonable to be treated as a fringe benefit (generally due to it being provided on an infrequent or irregular basis).
Provided vouchers meet the minor benefit conditions, they will not be subject to FBT. However, where the vouchers being provided either:
- have a value of $300 or more; or
- are provided to staff on a frequent or regular basis,
they will not be exempt as a minor benefit, and would be subject to FBT.
Based on the above, for those vouchers being provided to staff that do not qualify for an exemption from FBT, the FBT taxable value needs to be calculated. To do this, and as referred to above, the GST treatment of the voucher being acquired is important.
Where the voucher being acquired includes GST and the employer is entitled to a GST credit, the Type 1 gross-up factor is applied to calculate the FBT taxable value. (Note – despite the voucher being acquired including GST if redemption provides meal entertainment the employer would only be entitled to a 50% credit if the meal entertainment 50/50 rules are used. If the employer is a s57A employer no credit is available as s57A employers do not pay FBT on non-salary sacrifice meal entertainment).
Where the voucher being acquired does not include GST (e.g. a face value voucher) the employer is not entitled to any GST credit, and the Type 2 gross-up factor is applied to calculate the FBT taxable value.
Generally, where an employer gives face value vouchers of less than $300 to staff on an infrequent and irregular basis, such gifts should be exempt from FBT and do not give rise to any GST credits.
However, for all vouchers employers not only need to clarify the GST treatment that applies to the vouchers/gift cards being acquired, but also needs to understand how FBT applies including whether there is an FBT exemption.