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18 Dec 2014
The season of Christmas cheer is upon us and if you are in business no doubt you have already considered how to celebrate and reward your team for the year's efforts. The problem is now to determine what you can & can't claim.
The Christmas Party
In short, expenditure on entertainment is only 50% deductible for tax purposes. 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.The 50% limitation applies to all costs associated with the event, including food, drink, hireage of crockery, music and other entertainment.
Staff Christmas Gifts & Bonuses
A cash bonus is taxable income to the employee and will be subject to PAYE. It is a fully deductible employment expense.A gift voucher that is exchangable for cash is treated as a cash bonus.Most other staff gifts are treated as an unclassified benefit under the FBT rules. Unclassified benefits include gifts, prizes, discounted or free goods, payment on non work-related memberships or subscriptions.When determining whether FBT is payable there are certain de minimis thresholds.If FBT is accounted for quarterly, as long as all fringe benefits in that quarter do not exceed $300 for that employee and the value of unclassified benefits for all employees for the current and last 3 quarters combined does not exceed $22,500, the gift would be exempt.If FBT is accounted for annually, the employee limit for unclassified benefits is $1200 per year per employee and the $22,500 for all employees.Note that 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.The cost of the gifts (unclassified benefits) would be 100% deductible to the employer.
These are really a marketing and promotion exercise and as such, we consider they would be 100% deductible and should be included in your advertising and promotion expenses.
Client Christmas Drinks
To claim 100% deductibility for this, the function must be open to the public. An example of this is some Kaitaia businesses who have pre-Xmas evenings open to anyone who wants to attend. They would be able to claim all the food and drink costs.All other client Christmas functions will be subject to the normal entertainment rules and thus limited to 50% deductibility.
Charitable Entertainment and Gifts
Any entertainment provided to members of the public for charitable purposes is fully deductible. An example of this would be donations of food or gifts to a party in the children's ward of the hospital.The rules are quite complex and each claim can be very different. If you are unsure of your obligations contact your accountant.
To assist our clients over the Christmas period our Kaitaia office doesn't close until 23rd December and we reopen on 5th January.
Our partners are available by phone or email during the intervening period for any urgent queries.The team at PKF wish you a safe and merry Christmas and a happy and prosperous New Year.
For more information on how we can help your business, get in touch