Gifts: When do they become deductible?

The rule of thumb with gifts is that if they consist of food or drink, you can only claim 50% of the expense as a tax deduction. If you are giving out gift baskets or hampers and some of the contents are food or drink, but not all, the food or drink items are 50% deductible but the other gift items are 100% deductible. When you come to claim the tax deduction, you will need to apportion the expense between the 100% deductible items and the 50% deductible items.

Gifts to clients

If your Christmas giving includes gifts to clients, remember that some gifts will be fully deductible while others will be only 50% deductible. Use these examples as a guide.

50% deductible

100% deductible

Bottle of wine or six pack of beer Calendar
Meal voucher Book or gift voucher
Basket of gourmet food Tickets to a rugby game
(but not corporate box entertaining)
Box of chocolates/biscuits Movie tickets
Christmas ham Presents (not food or drink)

FBT on gifts and entertainment

If you are giving gifts to your team you may also be liable for fringe benefits tax. There’s a $300 exemption from paying FBT per employee per quarter so if the value of the gift is less than $300 you may be exempt. However, if the value of total benefits for an employee goes over $300 for the quarter year (and provided the total value of all benefits doesn’t exceed $22,500 for the year), the full value of the benefits is subject to FBT.

As for entertainment events, if you invite your team to an event that qualifies as a business-related entertainment expense which is only 50% deductible, you are not liable for FBT as well. So if you are entertaining employees at a party or you’ve hired a launch or holiday accommodation and the expenses for that are only 50% deductible, it isn’t subject to FBT. (On the other hand, if the event is being held outside New Zealand, it will be subject to FBT.)

There are exceptions to this that make it a tricky area so if you’d like more information on a whether a specific event you’re hosting is 50% deductible but may also be liable for FBT, please contact us.

 

 

 

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