It's time to tick another one off the calendar and celebrate with loved ones and workmates – not necessarily one and the same. But someone always has to be the party pooper and in this case it's the usual suspect – the IRD. As a business owner what are the tax considerations of the holiday season? The traditional Christmas knees-up for staff is a legitimate business expense right? Not like that sneaky 'buying trip' to Auckland that happened to coincide with taking the kids to see the production of "Annie". Well, it's not always that straight forward.
Generally, expenditure on entertainment is only 50% deductible. Even though the Christmas party for staff is an expense related to your business, there's also a significant private element. Party expenses you can claim 50% of can include venue hire, food, drink and entertainment. The only exception to this is light refreshments, such as a morning tea, that is provided on business premises which is 100% deductible. No thanks, Alison. The team wants a night out – cocktails and all.
A cash bonus is taxable income to your employee and will be subject to PAYE. Income to the employee, fully deductible expense for the employer. A gift voucher that is in lieu of cash is treated as a cash bonus. You can generally claim 100% of the cost of gifts, such as food baskets or event tickets. But you may need to pay fringe benefit tax (FBT) on such gifts. The threshold depends if calculations are accounted for quarterly or annual but generally no more than $1,200 per year per employee and $22,500 across all employees. Anything exceeding this, not only do I want a job, but the whole value of the gifts become subject to FBT, not just what exceeds the threshold.
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. I'm sure I'm not alone when I ask "Where's the job application?"
Client gifts fall under the marketing umbrella and should be considered 100% deductible. However, the same can't be said for client functions. In order to claim 100% of all food and drink costs, the event must be open to the public so that anyone can attend. Any other function would be limited to the usual 50% deductibility.
Entertainment can be a tricky subject and the staff at PKF are more than happy to be invited to your event to provide some personal advice. All the team would like to wish you a safe and merry holiday season. The Kerikeri office will close at 12:00 pm on 23 December 2015 and will reopen at 8:30 am on 18 January 2016.