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Rory Noorland points out the intricate and specific rules the IRD applies to the deductibility of gifts

Rory Noorland points out the intricate and specific rules the IRD applies to the deductibility of gifts

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).

Rory Noorland is a specialist accountant at CooperAitken Ltd, accountants in Morrinsville and Matamata. You can contact him here

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Hard to claim much when profits are illusory.

My wife works for me, as a paid employee. If I give her a new car, would that be 100% tax deductible??

The cost of purchasing the vehicle would be tax deductible yes, but would also be subject to FBT meaning that it would become in effect taxable to your wife. FBT would be paid by you as employer and could add up to another 49% on top of the cost of the cost of the vehicle depending on the marginal tax rate of your wife.