The ATO does tax Christmas bonuses in Australia. If you’ve been wondering how much are Christmas bonuses taxed, our tax experts are here to simplify this confusing topic.
In our guide on how much are Christmas bonuses taxed, we’ll explain how Christmas bonuses are treated by the ATO. We’ll also cover whether bonuses are taxable, and how they impact income reporting.
Are Christmas Bonuses Taxed in Australia?
Yes, Christmas bonuses are taxed in Australia. Understanding the tax obligations of cash Christmas bonuses is crucial for both employees and employers.
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What Is a Christmas Bonus?
A Christmas bonus is an additional payment provided to an employee during the holiday season. It is usually given as a recognition of hard work and a token of appreciation.
A Christmas bonus differs from regular income because it is usually a one-time payment related to the holiday season.
Christmas bonuses from an employer or business activity may come in many forms, such as:
- Cash
- Checks
- Gift cards
- Vouchers
- Profit sharing
Are Christmas Bonuses Taxed?
Yes, Christmas bonuses are taxed in Australia. The ATO classifies bonuses as taxable income.
Although the ATO states that “rewards or gifts on special occasions, such as cash birthday presents and gifts from relatives given out of love” are generally not taxable, Christmas bonuses are different.
Because Christmas bonuses are received as part of an income-earning activity or business-like activity, the ATO designates it as taxable income.
According to the ATO, Christmas bonuses count as ordinary time earnings (OTE).
We recommend the “Amounts you do not include as income” article from the ATO as an excellent resource to learn more.
Cash vs Non-Cash Christmas Bonuses
Cash Christmas bonuses count as part of your employee’s regular taxable income. You must withhold the correct amount for PAYG and consider appropriate tax brackets. Since cash Christmas bonuses are classified as part of an employee’s salary, you are responsible for paying payroll tax on the bonus. This amount will depend on the territory or state of the business.
Some employers prefer to show their appreciation with non-cash Christmas bonuses, such as gifts, entertainment, or Christmas parties.
If your Christmas bonus is a non-cash reward, you must pay attention to the Fringe Benefits Tax (FBT). Employers must pay Fringe Benefits Tax on certain benefits they provide to employees. If the reward value is less than $300 per employee, it is not classified as a fringe benefit.
According to the ATO, a minor benefit is exempt from FBT when:
- Its taxable value is less than $300
AND
- It is unreasonable for the reward to be treated as a fringe benefit
Learn more about the Fringe Benefits Tax (FBT) here: Minor benefits exemption | Australian Taxation Office
Do Employers Need to Report Bonuses?
Yes, employers are obligated to report Christmas bonuses to the ATO. Bonuses to employees are treated the same as wages, making Christmas bonuses liable for payroll tax. Cash Christmas bonuses are calculated as part of an employee’s taxable income.
It is important to calculate cash Christmas bonuses manually. Your software likely won’t detect the difference between regular weekly wages and a bonus. Notify the ATO of the once-off payment as bonuses are recorded differently.
Any cash Christmas bonus given to your staff must be reported to the ATO as normal income. Cash Christmas bonuses in Australia amount must:
- Be recorded through single touch payroll (STP)
- Have superannuation paid
- Withhold the correct amount for PAYG
How Much Are Christmas Bonuses Taxed?
To calculate the tax on your Christmas bonus, you’ll need to add the cash bonus to your wage or salary for the corresponding pay period. From there, you’ll need to calculate the tax on the entire amount for a once-off payment.
If the Christmas bonus corresponds to a single pay period, the amount is added to their total earnings during that current period. The standard PAYG withholding tax table is used to calculate withholdings.
Here is a mock scenario to help demonstrate how Christmas bonuses are taxed in Australia:
Max is given a $1,000 bonus on his December paycheck for his current pay period, which is weekly. He adds the $1,000 to the current pay period. Max then calculates his withholding on the total amount using the PAYG withholding tax table.
We offer a convenient income tax calculator here to get you started: Income Tax Calculator 2024.
We also recommend the ATO’s page on withholding examples as an excellent resource:
Withholding amounts examples | Australian Taxation Office.
Does the Type of Bonus Affect Taxation?
Yes, the type of Christmas bonus directly affects how it is taxed. Cash bonuses vs. fringe benefits are taxed differently.
Cash Christmas bonuses are treated as regular income and taxed accordingly. If you give a non-cash reward, such as gifts, the Fringe Benefits Tax may be applicable.
Adhering to certain guidelines will ensure your gift is considered a minor benefit and exempt from Fringe Benefits Tax.
To qualify as a minor benefit, keep these specifications in mind:
- The reward or gift must be ad hoc (nothing recurring or ongoing, such as monthly payments for a gym membership)
- The taxable value of the gift must amount to no more than $300
- The gift must be spontaneous
We often recommend this webpage as an excellent resource for fringe benefits tax (FBT) for non-cash bonuses: Fringe benefits tax (FBT) | Australian Taxation Office
Strategies to Maximise Your Bonus
Tax Efficient Christmas Bonuses: For Employees
One tax efficient Christmas bonus option employees may want to consider is salary sacrificing. Salary sacrifice is an arrangement between you and your employer. You may be eligible to salary sacrifice your cash Christmas bonus into your superannuation fund.
A salary sacrifice arrangement will allow you to pay less income tax on your reduced wages or salary.
A written salary sacrifice arrangement must be in place prior to receiving your bonus for work performed.
You May Also Like: Tax Return Checklists – Industry-Specific Guides to Tax
How to Structure Bonuses Tax Efficiently: For Employers
The ATO considers Christmas cash bonuses as OTE (Ordinary Time Earnings). This means you may bump your employees into a higher tax bracket by paying them a cash Christmas bonus. This may affect their Medicare levy surcharge, prevent them from claiming the extra tax until the financial year is up, or present other difficulties.
We recommend speaking with a tax professional to ensure you are structuring Christmas bonuses tax efficiently. We also suggest talking to your staff so they are aware of tax implications and can express how they would like to receive a Christmas cash bonus.
You can also keep Christmas bonuses under $300 per employee, ad hoc, and spontaneous. $300 is the threshold for Fringe Benefit Tax (FBT), so staying under this amount is a way to stay tax efficient.
FAQs About Christmas Bonuses and Taxation
Can I give my employees non-taxable Christmas bonuses?
The ATO considers Christmas cash bonuses to be OTE (Ordinary Time Earnings). Therefore, cash Christmas bonuses are taxable. You may want to discuss salary sacrificing with your employees or non-cash Christmas bonuses that fall below the Fringe Benefits Tax Threshold.
Do I need to include my bonus in my tax return?
Yes, if you receive a Christmas bonus, you must declare it on your tax return. The ATO considered cash Christmas bonuses as OTE (Ordinary Time Earnings). You are responsible for calculating and paying the appropriate tax amount.
What happens if I don’t report my bonus correctly?
If you fail to report your bonus correctly, you may face fines and penalties from the ATO. As with any mistake when lodging your return, contact the ATO immediately. The sooner you notify the ATO of a mistake and get it corrected, the more likely they’ll work with you.
We also recommend contacting a tax professional if you do not report your cash Christmas bonus correctly. A tax professional can act as a mediator between you and the ATO, ensuring the situation is rectified as quickly and accurately as possible.
How TaxReturn.com.au Can Help
The ATO requires cash Christmas bonuses to be reported by employees and employers. We want it to be exciting for you to receive a cash Christmas bonus, not stressful. Managing the tax implications of Christmas bonuses doesn’t have to be overwhelming.
Our expert tax professionals at TaxReturn.com.au provide guidance and services for managing taxable income and filing tax returns.
Ready to maximise your tax benefits with salary sacrificing? TaxReturn.com.au is here to help you navigate your options. Contact us today for expert advice, or get started with our easy online tax return services to make the most of your financial strategy.
