As the festive season approaches, many businesses are planning how to thank their teams. A popular choice has long been the humble gift card, but this year, there’s a planned tax shake-up that employers need to keep in mind.

Upcoming Gift Card Tax Changes

The Government’s Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill, which is currently at its second reading, includes proposed updates to how gift cards are treated for tax. If enacted, the new rules will apply retrospectively from 16 April 2025.

The intention is to bring greater clarity and consistency to how gift card benefits are treated, addressing long-standing confusion between:

• Open-loop cards, such as Visa or Prezzy, which act like cash
• Closed-loop cards, such as Mitre 10 or Westfield, which can only be used at specific retailers

What’s Changing

Currently:

• Open-loop cards are treated as cash and require PAYE deductions and payroll processing.
• Closed-loop cards fall under FBT rules.

Under the proposed Bill:

• All gift cards, both open and closed loop, would become taxable under either FBT or PAYE.
• Employers could choose which method to apply, except where the card is a substitute for salary or wages. In those cases, it must go through payroll with PAYE applied.
• The FBT de minimis exemption ($300 per employee per quarter) would no longer apply to gift cards.
• Gift cards provided on or after 16 April 2025 would fall under these new rules. Employers who have already applied FBT or PAYE in good faith earlier this year would not be disadvantaged.

What This Means for Employers

Employers will need to decide how to tax all gift card benefits, choosing between FBT or PAYE.

• If FBT is applied, there will no longer be an exemption for smaller gifts, meaning every dollar is included in the calculation.
• If PAYE is applied, the gift’s value must be grossed up and processed through payroll, which could increase both tax costs and administrative effort.

These changes mean it’s important to plan ahead and align your reward strategy with both compliance requirements and company culture.

Rethinking How You Recognise Your Team

With these proposed changes, many businesses would benefit from re-evaluating how they reward their people. Some popular options could be:

• Personalized hampers or curated food and wine boxes (may be subject to entertainment tax)
• Useful tech or home office accessories (typically subject to FBT unless an exemption applies)
• Wellness or experience packages, such as spa days, concerts, or adventure activities (often subject to PAYE)
• Team celebrations that focus on shared experiences rather than individual gifts (potentially subject to entertainment tax)

These options may reduce compliance effort while also creating more meaningful and memorable ways to recognise your people.

Making Smart Decisions for 2025 and Beyond

The proposed changes aim to simplify the rules but may also increase complexity in practice. Reviewing your approach early will help you stay compliant while keeping your recognition programs simple, fair, and effective.

If you have any questions about how these proposed changes could affect your business, get in touch with us. We can walk you through the proposed changes and help you find a tax-smart, people-first approach that works for your business.