Entertainment, Gifts and Bonuses
Christmas is a time for showing your appreciation to staff and customers, so it is 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% deductible or limited to 50% depending on the nature of that expense. It could also be subject to the FBT rules.
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 previously listed is for the main purpose of entertainment. A deduction will also be limited to 50% if entertainment is provided that includes a private element such as providing away from the workplace 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; gifts of food and drink. Where a deduction is limited to 50%, GST is also limited to 50%.
Entertainment could also be subject to the FBT rules if the benefit is enjoyed or received by employees.
Gift Vouchers – This cost is 100% deductible, however, 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 for the business.
Bonuses – These payments made to employees are deductible to the business and taxable at the lump sum or “extra pay” rate as part of the employee’s 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.