By Rory Noorland*
As we come into the time of year where gifts to suppliers, customers and staff becomes more common it is important that you are aware of the Inland Revenue rules around bonuses and gifts.
As usual it can get quite complex, so it is a good idea to check with your accountant as to what can be tax deductible.
In September 2016 Inland Revenue issued a clarification that gifts comprising of food and/or drink are to be treated as 50% deductible.
In general, entertainment expenses are either 50% or 100% deductible. However you also need to watch out for fringe benefit tax (FBT).
As a general guideline over the Christmas period;
- Christmas parties are 50% deductible
- Transport to the function is 100% deductible, but FBT could apply
- Lunches, morning teas are 100% deductible
- Christmas gifts and gift vouchers providing they are not food or drink are 100% deductible;
- Gifts of food and drink are now only 50% deductible and FBT could apply
- Cash bonus – treat as wages with PAYE deducted
It is important to remember that these rules apply throughout the year, not just at Christmas.
Inland Revenue provides the example of a real estate agent who delivers a bottle of champagne to the owner on the sale of a house and who also sends a gift basket to the purchaser. The gift basket contains a bottle of wine, some cheese and various household items such as tea towels and soaps.
In their example the real estate agent will only be able to deduct 50% of the cost of the bottle of champagne. This is because he is providing entertainment in the form of drink and is doing so off his business premises. For the gift basket, they can deduct the full cost of the tea towels and soap, however, he can only deduct 50% of the cost of the wine and cheese (or, if the cost is not separately identifiable, an amount appropriately apportioned as the cost of the wine and cheese).