The season of gifts and bonuses
As end-of-year celebrations get underway, it’s easy to lose track of what’s deductible and what isn’t. Whether you’re hosting a team lunch, gifting staff vouchers, or planning Christmas bonuses, understanding the tax rules now can help you avoid surprises later.
Entertainment Expenses
Entertainment is a commonly misunderstood area of business tax. Here’s a clear breakdown of what you can (and can’t) claim:
50% Deductible Entertainment
If you're entertaining clients or staff and there's a mix of business and pleasure, like a dinner meeting, you can usually only claim 50% of those costs as a tax deduction. This is because there's a private benefit involved as well.
100% Deductible Entertainment
Some entertainment expenses are fully deductible. For example, if you're providing meals for employees while they're travelling for work, you can claim the full cost. Also, if you're hosting a public event to promote your business and everyone, including the public, has the same access as your employees, you can deduct the full cost.
These rules are designed to ensure that businesses can claim deductions for genuine business-related entertainment, while also recognising the private benefit that might come with some of these expenses.
Bonuses
If you’re planning Christmas bonuses, remember that they are treated as taxable income. Your payroll system will apply the correct PAYE, KiwiSaver, and student loan deductions.
Keeping tax calculations on track
When it comes to bonuses, the taxman treats them just like regular income. But don't worry, your payroll system has got this covered. It's set up with the latest tax rates and knows exactly how to handle the "extra pay" method. This means it can figure out the right amount of tax to deduct, so you don't have to.
Handling KiwiSaver and other deductions
If your employees are part of KiwiSaver, the system automatically takes care of those contributions. It also checks if there are any student loan repayments needed. This way, all the necessary deductions are sorted without you lifting a finger.
So, as you plan those festive bonuses, rest easy knowing your payroll system is working hard behind the scenes to keep everything running smoothly.
Gift Vouchers
Gift cards that can be used at multiple places (eg. Prezzy cards)
If you provide employees with gift cards that can be used at multiple retailers (such as Prezzy cards), the IRD considers these to be cash equivalents. Because they function just like money, they are treated as taxable income for your employees.
This means:
The value of the gift card must be processed through payroll.
PAYE, KiwiSaver, and other applicable deductions apply, just as they would for a cash bonus.
The amount should be included in the employee’s gross income for the relevant pay period, and PAYE paid to IRD.
Specific gift cards (eg. Bunnings or a fuel voucher)
Gift vouchers are a popular end-of-year gesture, but they may fall under Fringe Benefit Tax (FBT) rules.
Fringe Benefit Tax (FBT): When you give gift vouchers to your employees, they’re usually seen as a fringe benefit. This means you might need to pay Fringe Benefit Tax on them. Basically, the value of the voucher gets added to your FBT calculations.
Small Gifts Exemption: There’s a handy little rule called the "de minimis" exemption. If the total value of all small gifts (like vouchers) you give to an employee is under $300 in a quarter, you might not have to pay FBT on them. Just keep in mind, there’s also a $22,500 cap for all employees over the year
Make sure you keep good records of all the vouchers and gifts you hand out. This helps you figure out if you can use the small gifts exemption and makes FBT calculations easier.
The good news? The cost of these vouchers is usually tax-deductible for your business, since it’s an employee-related expense.
Got questions still?
By keeping these points in mind, you can spread some holiday cheer without any tax surprises. If you have any questions about tax-deductible expenses, talk to our team.