Christmas gifts and entertainment 🎄🎁🥂

Christmas gifts and entertainment 🎄🎁🥂

The title of this blog sounds like a bit of fun, but in reality I'm just about to go ahead and put a little dampener on "the most wonderful time of the year" 😅

10 points to any reader out there who guessed that the dampener is.... tax! 🎉😓

It's not so bad really, it's just making sure you- a small business owner - are aware of the tax implications of gifts and entertainment, as apparently Christmas time is very popular for these two things*, and they aren't always a straightforward business expense that you get to write-off for tax purposes.

By the way...the tax treatment of the below should not sway your decision on what you're planning to do for Christmas gifts and entertainment - please, absolutely do whatever you want to do. But it's important to be aware so it's not a surprise later down the track when you've already spent the money but don't get as much tax benefit out of it.

Let's break it down into the most common things that happen during the silly season:

Gifts - food and/or drink

We're talking bottles of wine, food hampers, chocolates, teabags/coffee beans etc. etc. etc.

Anything that has a food or drink element to it that you gift to your customers or suppliers, will generally only have 50% of it's cost considered an expense for tax purposes.

For staff however, it's 100% considered an expense for tax purposes but you'll potentially need to factor this into a Fringe Benefit Tax calculation (see more below).

Don't forget that gift vouchers relating to food and drink are under this banner too.

Gifts - tangible and inedible

This is in relation to gifts like flowers, jewelry, mugs, pot plants, water bottles, books, etc. These may be entertaining to look at, but not exactly entertainment by definition.

These are generally 100% an expense for tax purposes. Cool cool cool.

Staff Bonuses

A very popular option to say a big thanks to staff for all their hard work during the year.

This is 100% deductible as an expense for tax, however it must go through the payroll system and it will be taxed for the staff member at a lump-sum rate - so whatever the staff member gets "in the hand" could be less than expected (but it will wash up in their end-of-year tax calculation).

Entertainment - food and/or drink

Unless you've gone international for your business' Christmas party (e.g. Fiji, and yes I'd like an invite too please), then it's probably safe to say only 50% of this type of expenditure is going to be considered deductible for tax.

Entertainment - activities

Going out for dinner, chartering a boat, tenpin bowling, NZ holiday accommodation, drinks at a pub...these are all things that some business owners do for their staff or customers at Christmas time to say thanks for the mems/for working with them.

Again, likely only 50% of any of this will be a tax expense.

Fringe Benefits for Staff

Sometimes gifts might be 100% deductible for you as a business owner, but if it is of a high value for your staff, then it might be subject to Fringe Benefit Tax. The threshold for this is $300 per staff member per quarter, so if you're under this threshold then no worries 👍 But if you go over this (because you're seriously so generous!) then you'll have to register for Fringe Benefit Tax and pay it on these gifts.

The entertainment tax regime can be complex in itself, not to mention it can be overridden with other tax regimes like fringe benefits or private limitations. It deals with a bunch of other situations like regular morning teas for staff, going out for coffees with customers, or heading away on a conference - these have not be discussed in this piece as it only covers Christmas entertainment.

Your accountant will be sure to review all your entertainment expenses at end-of-year, so the real point is, be sure to have fun and celebrate your business at this time of year, and consider that 50% of an expense is better than 0%!

*please be wary of my dry sense of humour

Disclaimer: This is not a comprehensive tax information piece, it is extremely general and is not to be taken as specific advice for your individual situation. Please always discuss this type of tax information with your accountant.