Tax on Christmas parties and presents

Christmas is fast approaching. If you’re planning a staff Christmas party to boost morale and mark the end of the year, that’s great – but what are the tax implications?

Below is an overview of different types of expenses and the percentage claimable for your business under the IRD’s entertainment rules, or whether it’s subject to Fringe Benefit Tax (FBT).

What is a Fringe Benefit? A benefit supplied by or arranged by an employer that has a ‘private’ element attached to it, such as health insurance, gym memberships, or motor vehicles available for personal use.

Staff Christmas party The cost of food, drink, and any incidental expenditure relating to things like equipment hire, music, or other entertainment is only 50% deductible for income tax and GST purposes. This applies whether the party is held on the business premises or off-site.

Christmas lunch/dinner The cost of taking colleagues out for an end-of-year lunch or dinner will generally be 50% deductible.

Cash bonuses These must be included in the employee’s wages for the week paid as a discretionary bonus with the applicable PAYE paid on them. Gifts to staff or clients The cost of gifts (other than food and beverages) to staff or clients will generally be 100% tax-deductible. However, any gifts relating to food, beverages, and supermarket vouchers are deemed entertainment and therefore only 50% deductible. Under FBT rules, if staff gifts are under the threshold of $300 for the October to December quarter for quarterly filing or under $1,200 per year for annual or income year filing, and also under $22,500 per year for the employer the costs should not be subject to FBT. If those thresholds are breached, FBT will be applicable and payable to IRD.

For more information on FBT, talk to your accountant or you can view the IRD’s guide to working with FBT (IR409) under the ‘Forms and Guides’ section at www.ird.govt.nz. The IRD’s Entertainment expenses guide (IR268) also lives there.

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