With only 10 sleeps to go until Santa arrives, the Christmas season is well and truly upon us! With that in mind, now is the time that employers are looking for whatever tax relief presents they can take advantage of when it comes to the Christmas spending.
The annual Christmas party & Christmas gifts
The Christmas party is an allowable expense for you as the employer, a great chance to team-build and reward the troops and is a tax-free benefit for the employees, though it is subject to the entertainment rules.
Also if you are giving your team or clients a festive gift, then this is also subject to the entertainment rules, or FBT, depending on the value, what the gift is, and the reason you are giving it.
For example, if you are giving your team a reward for good performance or because of the work they do – such as a voucher or weekend away – then this is 100% deductible, but will instead be subject to the FBT rules.
Below is a handy table of the entertainment expenditure rules we most often come across, so you know what is fully deductible, and what is subject to the 50% adjustment or FBT.
| Activity | Deductible | Subject | |
| 50% | 100% | to FBT | |
| Morning & Afternoon Tea | No | Yes | No |
| Taking clients (existing or potential) to lunch | Yes | No | No |
| Friday Drinks, Christmas Party | Yes | No | No |
| Gift Baskets (food & beverages) * | Yes | No | Yes ** |
| Gift Baskets (excluding food & beverages) * | No | Yes | Yes ** |
| Dinner out of town (no client present) | No | Yes | No |
| Overseas travel, including meals with clients | No | Yes | No |
| Meal or Beverage Vouchers (as an award) * | Yes | No | Yes ** |
| Other Vouchers (excluding food & beverages) * | Yes | No | Yes ** |
| Meal Allowance paid to staff working overtime | No | Yes | No |
* Gift baskets of food and beverages and meal vouchers are only 50% deductible however non-food and beverage items are 100% deductible. To get the maximum tax deduction it is necessary to calculate or apportion the costs between 50% and 100% deductible items. In many cases the cost associated with this will be more than the expense and therefore we suggest claiming 50% only.
** Although this expenditure falls within the FBT rules, FBT will generally only be payable if the $1,200 per employee (max $22,500 per employer) is exceeded, click here for more info.
The IRD have a full commentary on this also, which can be found on this link or access the IR268 (full guide) here.
For further advice, please do not hesitate to contact us directly on (07) 885-1022.