Holiday gifts and work functions

Giving gifts this holiday season? Make sure you account for the entertainment and Fringe Benefit Tax (FBT) rules.

We’ve broken down the complexities so you can make informed decisions.

Tax Deductions for Client Gifts:

Gifts to clients aren’t always 100% deductible. The rule of thumb is: you can only claim 50% of food and/or drink gifts, but all other gift items are 100% deductible.

Gift baskets and hampers need to have their value apportioned. Their food and drink portions are to be valued separately and claimed at the 50%rate , while the rest of the basket can be claimed 100%. If you can’t determine separate values you can simply claim 50% of mixed hampers.

Examples:

• 50% deductible: Bottle of wine, Meal voucher, Christmas ham, Box of chocolates, Value of food/drink in a mixed gift basket
• 100% deductible: Set of wine glasses, Book voucher, Movie tickets, Beach towel, Value of non-food/drink items in a gift basket

Inland Revenue have more examples on their website

Employee Gifts and Fringe Benefit Tax (FBT):

FBT rules are there to ensure non-PAYE benefits given to employees are also taxed appropriately:

• Gifts under $300 per employee per quarter (Apr-Jun, Jul-Sep, Oct-Dec, Jan-Mar) are FBT exempt
• If total benefits across all employees for a financial year (ending Mar) exceeds $22,500 for the year, full value becomes subject to FBT

“Employee” is a very broad term for FBT purposes so it’s a good idea to check in with us to ensure compliance.

Work Functions:

Work functions, such as end-of-year parties, are commonplace so it’s worth understanding how they effect your tax. Here’s a quick breakdown to ensure you stay on the right side of the rules:

• Tax Deductions for Work Functions:
  • Costs associated with work functions are generally 100% deductible
  • This includes venue hire, food, entertainment, and any other related expenses
• Fringe Benefit Tax (FBT) Considerations:
  • Work functions are exempt from FBT if they meet certain criteria:
    • They occur on the employer’s premises
    • All employees are invited
    • The total cost per employee doesn’t exceed $300 (inclusive of GST)
  • Work Functions will incur FBT if the cost per employee exceeds $300
    • Include the cost of the venue and entertainment, divided across the number of employees
  • Additional complexities arise if entertaining clients at these events. We recommend getting in contact to make sure you’re getting it right!

Have a happy giving season!