It’s coming up to that time of year when you might be planning a staff Christmas party. It’s great for morale and a chance to mark the end of the year. But what are the tax considerations?
You may be able to claim as business expenses events such as Christmas functions or giving gifts to employees.
However, you may not be able to claim all of the costs, and they may also be subject to fringe benefit tax (FBT). FBT is a tax paid on benefits that workers receive as a result of their employment.
You may be able to claim 50% of your party expenses in your GST and income tax returns if the expenses are related to your business. But there’s also a significant private element.
Party expenses you can claim 50% of can include:
- venue hire
- food and drink
You can generally claim 100% of the cost of gifts, such as food baskets or event tickets, as a business expense. But you may need to pay FBT on such gifts.
If you provide other types of goodies, like accommodation in a holiday home, use of a corporate yacht or lunch at a restaurant, then these come under entertainment expenses – and are 50% deductible as long as they’re business expenses.
Business entertainment rules are outlined in the Inland Revenue’s Entertainment expenses guide (IR268).
If you give your employees some sort of entertainment – like a voucher to use at any time – you may need to pay FBT.
There are detailed rules about FBT, including for entertainment expenses. There are some thresholds, so you may not always have to pay FBT if you only provide minimal fringe benefits. Check Inland Revenue’s Fringe benefit guide (IR409) to be sure.
If you provide Christmas food and drinks at a local venue, the cost is not subject to FBT – because employees can’t choose when and where to enjoy the benefit. However, the rules for entertainment expenses will apply. Inland Revenue’s Entertainment expenses guide (IR268) will help.
If you give employees vouchers for entertainment, meals or gifts and the employee can choose when or where to enjoy the benefit – and you’re not giving the benefit as a necessary part of their work duties – then these are subject to FBT.
Check out Business.govt.nz’s new tax and finance section for more on FBT.
Charity at Christmas
Are you thinking about some Christmas charity? You can deduct 100% of the cost of entertainment you give to the general public for charitable purposes. For example, if your company donates food for a Christmas party at a children’s hospital, that expense is 100% deductible.
And if you or an employee plans to use a business vehicle for a private trip over the festive period, check to see if you have to pay FBT on this benefit.