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Tax Deductions On Entertainment And Gifts This Christmas Season

Paul Martin • Dec 06, 2016

Tax deductions on entertainment and giftsAre you holding a Christmas function or a year end party this year?

Giving gifts to your employees?

If you are, you may be able to claim a tax deduction.

1. Entertainment

There are rules and conditions when it comes to tax deductions with 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:

50% Deductible

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

• Christmas drinks for team members or clients/customers in the pub

• 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

100% Deductible

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

0% deductible

• 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. Request an appointment online with one of our tax accountants to find out more about GST adjustments and tax returns.

2. Gifts

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.

50% deductible

• Bottle of wine or six pack of beer

• Meal voucher

• Basket of gourmet food

• Box of chocolates/biscuits

• Christmas ham

100% deductible

• Calendar

• Book or gift voucher

• Tickets to a rugby game (but not corporate box entertaining)

• Movie tickets

• Any presents that are not food or drink

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 holiday plans and expenses or want advice on your specific circumstances, we are a trusted team of chartered accountants in Auckland that can help you.

As an accounting firm in Auckland, we offer small business accounting services such as annual accounts, tax returns, GST and more also use the best online accounting software in New Zealand and have business advisors that can help you create your business plans and business strategy.

If you need help with your business this holiday, please call us on (09) 576 4166 or request an appointment online today.

Happy holidays everyone!

How the new Government and coalition agreements might affect owners of residential rental properties

By Paul Martin • 04 Dec, 2023
There were some key takeouts of interest to many of our clients from the recently signed coalition agreements between National, ACT and New Zealand First and the formation of the new Government. In particular there are a number of policies which will likely benefit landlord clients who own residential rentals. I have summarised some of these below. 1. Return of Interest deductibility for residential rental properties Interest deductibility for residential rental property owners will return. It will be phased back in over three tax years: • 2023/24 tax year: 60% of interest cost will be deductible. • 2024/25 tax year: 80% of interest cost will be deductible. • 2025/26 tax year: 100% of interest cost will be deductible. 2. Reduction in bright-line period National signalled in their pre-election campaign that the bright-line period for residential rental property sales would reduce from 10-years to 2-years. While the exact implementation of this policy is not yet known, it is good news on the horizon for residential property investors. 3. Reinstatement of 90-day no-cause termination notices The new government will reinstate 90-day no-cause tenancy termination notices. This will avoid many unnecessary disputes in the Tenancy Tribunal and gives landlords more confidence in letting to possibly “marginal tenants". Many landlords have avoided what they considered to be risky tenants because eviction for anti-social behaviour was so difficult. With this reinstatement, landlords might be more inclined to give a marginal tenant a chance because they know that if the tenant misbehaves, they won’t be stuck with them. If you would like more information on how these changes might affect your personal circumstances, please feel free to contact us to discuss further.

How does provisional tax work, especially in an economic downturn?

By Paul Martin • 18 Jul, 2023
If you had to pay tax of more than $5,000 in your last income tax return, you may have to pay provisional tax for the following year. Provisional tax is like making progress payments on next year's income tax.

How to handle inflation as a sole trader

By Paul Martin • 18 Jul, 2023
Sole traders have had an especially difficult few years as inflation surges. We have got three tips to help lighten the load for your sole trader business. 
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