Is team build­ing tax de­ductible?

Jerusalem Post - - BUSINESS & FINANCE - • By LEON HAR­RIS The writer is a cer­ti­fied pub­lic ac­coun­tant and tax spe­cial­ist at Har­ris Con­sult­ing & Tax Ltd.

The Start-Up Na­tion got where it is thanks to hard work and team build­ing. Team build­ing typ­i­cally in­volves ed­u­ca­tional ex­er­cises in­tended to align team mem­bers around goals, build ef­fec­tive work­ing re­la­tion­ships, clar­ify roles and find solutions to prob­lems – and hav­ing some fun to­gether.

So can a com­pany deduct the ex­pense of a trip for em­ploy­ees to a fancy ho­tel or restau­rant on the Kin­neret to learn about raft build­ing, egg drop­ping or blind draw­ing? Or are the em­ploy­ees tax­able on a fringe ben­e­fit at rates rang­ing up to 50%?

The Is­rael Tax Author­ity (ITA) has just pub­lished in­ter­est­ing guid­ance on team-build­ing ex­penses, ap­par­ently af­ter re­ceiv­ing many in­quiries on the sub­ject.

As a gen­eral rule, in cases where the good of the em­ployer ex­ceeds the good of the em­ployee, em­ploy­ees are not tax­able on team-build­ing ac­tiv­i­ties. All the con­di­tions enu­mer­ated in the guid­ance must be met as sum­ma­rized be­low:

The work re­quire­ments should jus­tify a team-build­ing event, e.g., many em­ploy­ees, team­work needed, etc.;

The em­ployer de­cides to hold the event and in­vites the relevant em­ploy­ees;

Team-build­ing days are con­sid­ered work­days, and em­ploy­ees re­ceive full pay; Em­ploy­ees can­not bring their spouses or rel­a­tives to any part of the team-build­ing event;

Team­work ac­tiv­i­ties are held dur­ing the work­week. If any part of the ac­tiv­ity is held over the week­end or dur­ing va­ca­tions, the full value is tax­able as a fringe ben­e­fit; The timetable is set or ap­proved by the em­ployer; The ac­tiv­ity takes place in Is­rael; The goal of the ac­tiv­ity is to im­prove work and the in­ter­ac­tion be­tween em­ploy­ees. More­over, the ac­tiv­ity must in­clude a pro­fes­sional lec­ture or en­rich­ment; The em­ployer must keep doc­u­men­ta­tion val­i­dat­ing the above; Costs in­curred by the em­ployer must be rea­son­able, hav­ing re­gard to the ac­tiv­ity and its goals, ac­cord­ing to the Fi­nance and Econ­omy Rules of the State of Is­rael, pur­suant to the State As­sets Law, 1951. Cur­rently, that means NIS 400 for a full day with­out ac­com­mo­da­tion, or NIS 700 for a full day with ac­com­mo­da­tion.

Com­ments: Gen­er­ally, these rules seem rea­son­able for a team-build­ing event, but the mone­tary lim­its may be on the low side. It is not clear whether these rules are meant to cover staff sem­i­nars.

A bone of con­tention not cov­ered is that of food at work­places for em­ploy­ees, which can be ex­ten­sive, es­pe­cially in hi-tech. But the take­away from the ITA is this: Check whether the ben­e­fit to the em­ployer ex­ceeds the ben­e­fit to the em­ployee.

As al­ways, con­sult ex­pe­ri­enced tax ad­vis­ers in each coun­try at an early stage in spe­cific cases.

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