What gifts are tax deductible?

Date: 13th December 2011

Let’s look at the tax treatment of saying thanks to customers and staff typically with gifts, wining and dining.
Inland Revenue’s IR268 guide gives the following examples of where entertainment expenses are 50% deductible:

• Taking customers, suppliers and business associates out for dinner or putting on a function for them
• The traditional Christmas party for staff
• Shouting customers, suppliers and staff to an event, e.g. a rugby game or a show
• Taking them on a jaunt in your launch (running/hireage costs and food and alcohol)
• Giving them the use of your bach or time share apartment as a thank you gesture (the occupancy costs)

We’ve been asked ‘why only 50% deductible?’ Apparently it’s because we get some personal enjoyment or benefit from quaffing a wine and tucking into a steak (too right!).

In lieu of a Christmas party you may give your employees restaurant vouchers to use at their discretion. This cost is fully deductible but is subject to fringe benefit tax (FBT), although there is an exemption of $300 per employee per quarter (a maximum exemption can apply). The same treatment applies to staff gifts, again fully deductible but subject to FBT under the ‘other benefits’ category.

As a thank you gesture many firms give their customers gifts during the festive season. The cost of the gifts is fully tax deductible as marketing and promotion expenditure.

Many firms pay their staff a Christmas cash bonus. These payments are classed as ‘extra emoluments’ and are fully deductible but have PAYE deducted at the employee’s marginal tax rate e.g. 33% if earning over $70,000 per annum.

If in doubt about where you stand tax deductibility-wise with your generosity to customers and staff, check with us and we’ll help you get it right.

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