With Christmas and the holiday season approaching fast we thought we’d revise some Business Entertainment Expenses claim rules. Some Fringe Benefit Tax rules can come into play too, it all depends on how your business presents its entertainment events or gifts. And remember events must be directly related to your business – so that’s either your staff or clients … not personal friends.
Let’s start with the annual Xmas lunches or dinners … here we’ve outlined sample festive scenarios and what can be claimable:
Sarah, who has a hairstyling Salon, wants to take her four staff out to a local restaurant to celebrate the end of year and as a thank-you to her staff. She can claim 50% of the meal and the drinks, as an entertainment expense. This claim also applies if she wants to take out some long-standing clients or Judy, her local agent for beauty products to the salon out, too. If she needed to book a private room at the restaurant, she can claim 50% of the that cost, too.
Dave has an engineering company and this year he opts to have a hangi at work before break up, behind the workshop rather than a dinner out – mainly as his boys got rather loud and rowdy after a few drinks last year at a restaurant. He contracts a local Maori group through his mate’s whanau who say they can do a genuine hangi, for some ‘koha’ donation to their Marae funds. Considering the IRD definition here: ‘a donation must be an unconditional gift and nothing must be received for it’. Here, IRD would view the staff are receiving a benefit of a hangi meal provided even if no agreed koha amount is discussed. Dave can still make some ‘koha’ donation to the group, but only 50% of the expense should be claimed – not 100% of whatever koha/donation he makes. It will be recorded as an 50% entertainment cost in the books. Other event hireage costs Dave’s business could claim would be 50% on hired table & chairs, musical band or DJ hire, etc.
Laura, an Interior Designer, planned to take the staff out for dinner, but now is really rushed timewise, decides this year she’ll put on a light morning tea at work instead in their office and gets a catering company to deliver Christmas treats, and hand out some gifts to them. Light morning or afternoon teas onsite are 100% deductible, so Laura can claim 100% of the cost of the catered morning tea. But remember the emphasis here is on ‘light’ refreshments, not a full meal. What she can claim on the expense of the staff gifts, depends on what she hands out. A review on what she can claim on gift purchases for staff is discussed below.
Fringe Benefit Limitations for Staff gifts
Generally, if the entertainment expense is only 50% deductible as in the above scenarios, then it’s not usually liable to Fringe benefit tax. But for one exception, per this scenario…
Judy & Russ are heading away extra early for their Christmas break, so they opt to hand out gift vouchers from a local fine dining restaurant to their staff & partners to enjoy at their leisure, and promise to do a company BBQ in the New Year instead. They can claim 50% of the cost of the vouchers they buy for the staff. And Inland Revenue has decided where staff have a ‘choice or flexibility’ in their use of gift vouchers given out – as above, then it is a ‘Fringe Benefit‘ offered to the staff, and may be liable for tax. Complicated much? There is a $300-dollar fringe benefit exemption, per quarter of the year, per staff member. So, if your business supplies other fringe benefits throughout the year (perks like access to company vehicle, paid gym memberships, staff discounts etc), remember to account for the value of any end of year gifts or vouchers you give your staff at the end of the year, too as your business may become liable to pay tax on these gifts where FBT limitation allowance are exceeded. We are happy to supply more information on how and what Fringe Benefits Tax your business may be liable on – please contact us.
Giving Staff or Clients Gifts – What to Claim:
If it’s not food or drink, you can claim 100% on the expense of the gift. Hence Calendars, movie tickets, bottle openers etc would be 100% claimable.
But alas, if you opt to pass out gift that are eatable or drinkable like Gift baskets of food treats, Xmas Hams or a nice wine as presents – then you can only claim 50% of these expenses! (Mmmm – Got to wonder if Inland Revenue have some alliance with the Weight Watchers Organisation?)
Again, remember Fringe Benefit tax may be payable on gifts if they’re for staff.
What about completing my GST returns for entertainment costs …what do I claim? You can claim the GST portion of the allowable business expense – where it has been shown to be included – where the supplier is GST registered. But note, on gift vouchers, you cannot claim GST as a purchaser, as GST should be claimed by the business redeeming the value of the voucher. Inland Revenue rules endorse that only the voucher seller and the business redeeming the value of the voucher, should claim the GST portion. Do check in with us too, as there can be variations on the type of vouchers bought.
Keep all Those Entertainment Receipts! Gather all receipts and invoices from entertainment events – get staff to return their receipts incurred in liaison with company entertainment expenses. Record the purpose of the Event, who guests were and reason for function – yes Inland Revenue can ask these questions. Take photo shots of those small receipts like taxi chits or drink dockets, as we know they go missing so easily. Inland Revenue does review entertainment expenses carefully, and may ask questions so it’s useful to have proper information and records to hand and it also makes it easy for you to present any claimable expenses at the end of the financial year.
The advice given in this blog is general advice only. Please contact Do The Sums and More if you have any questions or need professional advice.