Tax obligations around gifts and entertainment
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GRA Blogs
Articles by Nathan Budd
It’s that time of year when businesses look to reward their staff and clients by hosting Christmas parties, giving gifts, and paying bonuses.
Some of these costs may be fully deductible, some may be 50% tax deductible, and others subject to Fringe Benefit Tax (FBT) or PAYE deductions. To help your business stay on the right side of the Christmas Grinch (IRD), below is a short summary of how the rules apply.
Christmas Parties
Whether the business hosts this party on or off premises, the event will have a private element. This means that the entertainment rules apply, and the cost will be 50% tax deductible.
Staff Gifts
When giving gifts to staff, it is important to be aware of the FBT de-minimis rules. If the total cost of non-entertainment expenditure on things such as gift vouchers, hampers and wine in a quarter (October to December) is less than $300 inclusive of GST per employee, the cost will be tax deductible in full. Note a caveat to this rule is that the combined benefits provided to all employees in a year cannot exceed $22,500.
If either de-minimis threshold is exceeded, the business will need to calculate and pay FBT on the benefits provided.
Client Gifts
Gifts provided to clients can fall into two camps: either deductible in full or only 50% deductible. This usually comes down to the nature of the gift.
Gifts that are perishable (such as food and drink) and the provision of corporate box tickets are examples of expenses that are 50% deductible.
An example of a fully deductible expense would be if the business gave out branded products such as a t-shirt or a cap.
Working out whether a client gift is fully or partly deductible is something you should discuss with your accountant, as it may not be immediately obvious which camp it falls into.
Cash Gifts to Staff
If you are looking to provide your staff with a gift of cash, it is important to remember that your business is obligated to return the amount gross of PAYE in the relevant payroll return. Not disclosing the cash gift would result in understating your employee’s remuneration, which may lead to IRD charging penalties or pursing legal action.
GST Implications
When preparing GST returns, you should make an adjustment for entertainment costs where they are only 50% deductible. Not making these adjustments each period can lead to a nasty surprise come year end, when your business ends up owing a chunk of GST back to IRD.
If you’d like help with understanding your tax obligations around parties and gifts, please contact us at GRA.
Nathan Budd
Client Services Manager
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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