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22 Nov 2018
The staff Christmas party
Expenditure on entertainment is only 50% deductible for tax purposes. This includes associated costs such as venue hire, music etc. Whether the party is hosted on your own premises or offsite, it still is classed as entertainment. Light refreshments, such as morning tea provided on business premises, are an exception to this rule and are 100% deductible.
Staff gifts and bonuses
A cash bonus is taxable income to the employee and will be subject to PAYE. It is a fully deductible employment expense.
Most staff gifts including gift vouchers, apart from food and drink, are treated as an unclassified benefit under the fringe benefit tax (FBT) rules and 100% deductible, subject to limits.
As long as all fringe benefits do not exceed $300 for that employee (or $1200 per annum) and the value of unclassified benefits for all employees for the year does not exceed $22,500, the gift would be exempt from FBT. As it is an all or nothing approach, once the threshold is exceeded the whole value of the gift is subject to FBT, not just the surplus.
These are really a marketing and promotion exercise and as such, we consider they should be 100% deductible and included in your advertising and promotion expenses. However, if they include food and drink, the 50% limitation would apply to that portion e.g. the cost of a gift basket needs to be split between food/drink item costs and other costs. You may want to consider sending a client sunhats and beach balls rather than a Christmas ham or wine.
Client Christmas drinks
To claim 100% deductibility, the function must be open to the public. An example of this is some Kaitaia businesses who have pre-Christmas evenings open to anyone who wants to attend.
All other client Christmas functions will be subject to the normal entertainment rules and thus limited to 50% deductibility.
The entertainment and FBT rules are quite complex and each claim can be very different. You are wise to get advice from your accountant if you are unsure of your obligations.
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