Entertainment, Gifts & Bonuses
Since Christmas is a time for showing your appreciation to staff and customers, now seems like an appropriate time to refresh your Entertainment, gift and bonuses deductibility rules. Provided you keep copies of invoices/receipts you are entitled to claim for business related entertainment expenses which could include gifts, business promotion (existing or new business contacts), staff functions or client functions, events and offering freebies. That claim may be 100% deducible or limited to 50% depending on the nature of that expense.
Entertainment – Some business expenses are 100% deductible and these include food and drink while travelling on business; food and drink provided at a conference; light meals provided for senior managers; or promoting your business, products or services. The 50% deductibility rule will always kick in if the nature of providing those expenses listed above is for the main purpose of entertainment. A deduction will be limited to 50% if entertainment is provided that includes a private element such as providing entertainment away from the work place or out of usual work hours including corporate boxes or similar; holiday accommodation; recreational boats, food and drink at work for social events (other than providing light refreshments), food and drink offsite or gifts of food and drink. Where a deduction is limited to 50%, GST is only claimable on the deductible portion.
Entertainment may be subject to the FBT rules if a benefit is enjoyed or received by employees. Entertainment may be subject to FBT if 100% deductible or if it falls within the exemption, FBT will be payable on employer provided 50% deductible entertainment.
Gift Vouchers will be 100% deductible however they will be subject to the FBT rules as the recipient is able to spend and enjoy the voucher or gift as they like. This may also be applicable for membership and subscriptions paid on behalf of employees. There is no claim for GST purposes when purchasing gift vouchers as there is not a supply of a good or service. The redemption of a voucher will, however, trigger a GST disclosure.
Bonuses paid to employees are deductible to the business and taxable at the lump sum or “extra pay” rate as part of the employees wages. These payments could include annual or special bonuses; cashed in annual leave; retiring or redundancy payments or back pay. Your payroll software should be able to calculate a lump sum payment tax deduction alternatively the IRD website shows how this calculation should be done.