Most businesses will give to employees, clients and often charities at Christmas time. From morning teas to elaborate Christmas functions, from cards and calendars to hampers and the latest gadgets, Christmas is a season of giving.
When it comes to claiming tax deductions this Christmas season, there are very specific rules that apply. We have put together this simple guide about tax on Christmas entertainment and gifts to help you through the festive season.
There are rules that apply to tax deductions for Christmas parties, year-end functions and other client/customer or employee entertainment expenses. Some entertainment expenses are fully deductible, while some are not. Here are some quick tips to help you:
If your client/customer, employees or anyone associated with the business has a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs. Some instances include:
- Christmas drinks for team members or clients/customers in the office or at a bar
- Hiring of a launch to entertain clients/customers
- Restaurants providing food and drinks to team members at a social function in their restaurant
- Staff Christmas party on or off the business premises
- Function hosted in a marquee at the races (or in a corporate box at the rugby). Includes the cost of tickets and any food and drink provided
- A weekend away for the team at holiday accommodation in New Zealand, including any food and drink provided
These include entertainment expenses that are supplied for charity and entertainment enjoyed outside New Zealand. Some specific examples are:
- Donating food to a Christmas party in a children's hospital
- Providing entertainment, including food and drink at your promotional stand for the Cracker Christmas Festival
- Holding the Christmas party in Fiji
- Taking your family or any relatives who do not work in your company out for dinner or for a holiday vacation within or outside New Zealand.
Note: If you claim a 50% deduction for a business entertainment expense you need to make necessary GST adjustments. These adjustments will be required to be made at the time your income tax return is filed.
If you are planning to give your employees, suppliers, clients/customers, or prospective clients/customers gifts this season, you need to know that some gift items are not fully tax deductible as they are counted as entertainment expenditure.
- Bottle of wine or six pack of beer
- Meal voucher
- Basket of gourmet food
- Box of chocolates/biscuits
- Christmas ham
- Book or gift voucher
- Tickets to a rugby game (but not corporate box entertaining)
- Movie tickets
- Any presents that are not food or drink
- Making a donation to a registered charity
Note: You may claim the full cost of your employee gifts if they do not fall within the business entertainment rules. However, you may have to pay Fringe Benefit Tax (FBT) if the cost exceeds more than the general employee exemption and maximum employer exemption - if you want to know more about FBT, please call us on (09) 576 4166.
This is just a quick guide to tax deductions on gifts and entertainment. If you are still unsure about your festive plans and expenses or want advice on your specific circumstances, please call us on (09) 576 4166 or contact us today.
Enjoy the pending silly season everyone!