Are you planning a Christmas event for your clients? Is gift-giving on your to-do list?
Take a minute to refresh yourself on what is deductible as a business related expense.
Are you thinking of gifts for clients, business associates or team members?
If gifts consist of food or drink, you can only claim 50% of the expense as a tax deduction. If gift baskets or hampers contain some food or drink and some other goodies, the food or drink items are 50% deductible but the other gift items are 100% deductible.
Note that when you claim the tax deduction, you need to apportion the expense between the 100% deductible items and the 50% deductible items. Let us know the details.
The basics: an expense is business-related if you spend the money to help your business earn income. Business-related expenses are generally fully deductible. If the expense does not help your business earn gross income, it is a private expense, not claimable as a deduction.
Purely promotional events put your brand out there and are a marketing expense for the business. But entertainment events such as Christmas parties inhabit a grey area sometimes.
1. Are you planning a promotional event open to the general public? Sponsoring the local Santa parade?
- The event will be 100% deductible as a business expense.
- However, if the event is not open to the public, but by invitation to customers, business associates or team members, you can only deduct 50% of the costs.
2. Are you planning an event for charity? A Christmas party at the local hospital? Serving Christmas dinner at the local homeless shelter?
- Entertainment supplied for charity is 100% deductible.
3. Are you celebrating a spectacular year and taking your team to Raro for a weekend?
- Entertainment enjoyed outside New Zealand is 100% deductible.
- However, if your team contributes to costs (for airfares or anything else), make a note to reduce your expense claim by the amount of the contribution.
4. Are you having a Christmas staff party to celebrate the end of the year with your team?
It’s coming up to that time of year when you might be planning a staff Christmas party. It's great for morale and a chance to mark the end of the year. But what are the tax considerations?
Party expenses you can claim 50% of can include:
- venue hire
- food and drink
- If you provide other types of goodies, like accommodation in a holiday home, use of a corporate yacht or lunch at a restaurant, then these come under entertainment expenses – and are 50% deductible as long as they’re business expenses.
You will need to make a GST adjustment for any entertainment expenses which are 50% deductible. This will be required when your income tax return is filed. We can help you with this.