MHK Chartered Accountants Update on Deductibility of Gifts of Food & Drink

Many businesses provide food and drink in various guises to customers, prospects and staff during the year, and more so over the festive Xmas season. However, there is often confusion about these costs regarding whether they are 100% tax deductible, 50% tax deductible, non-deductible or liable to FBT.

 

The IRD have recently sent out an update clarifying their “Operational position” on deducting expenses, stating, “The entertainment expense rules limit tax deductions for certain types of expenses to 50% of the cost. One type of expense covered is the expense of providing food and drink off business premises.  This means that spending on things like chocolates or a bottle of wine to give as gifts to customers, clients or suppliers for example, is only 50% deductible.  If the items are purchased as a gift basket or together with other items that aren't food and drink, the expense must be apportioned between fully deductible and not fully deductible.”

 

Ian Malcolm, Managing Director of MHK Chartered Accountants Ltd, states, “It is gratifying that the IRD have clarified this position.  This statement is different to that previously made by the IRD in other newsletters in recent years, and it is pleasing that positions taken by taxpayers under their previous guidelines, where those differ from these latest guidelines, will not be challenged by the IRD.”

 

The IRD confirm, “The above information is different to two items that appeared in previous Business Tax Update newsletters (Issue 26, December 2011 and Issue 27, February 2012). The Commissioner considers the correct position to be as set out above, and will apply this to tax positions taken starting 1 September 2016.”

MHK have compiled a list of some common spending, and the currently stated tax treatment by the IRD:

Corporate boxes - tickets, food and drink provided in boxes, marquees, tents or similar exclusive areas (permanent or temporary) at cultural, sporting, other recreational events or away from business premises, 50% deductible.

Food and drink at work, 50% deductible. Light refreshments at work, like morning and afternoon teas, 100% deductible. Offiste food and drink, 50% deductible. Gifts of food and drink, 50% deductible. Food and drink while travelling on business, generally 100%.

When travelling on business, having a meal or function involving an existing or potential business contact as a guest, or a celebration meal, party, reception or similar occasion while travelling, 50% deductible. Food and drink provided at a conference for four consecutive hours or more, not counting meal breaks and not an entertainment conference, 100% deductible.

Light meals provided in a dining-room for senior managers if consumed as part of the manager’s employment duties, 100% deductible. Promoting a business or the business’s products or services to the public, 100% deductible. Freebies to the public or a columnist, 100% deductible. Freebies to staff or associated people, 50% deductible.

 

Offshore Entertainment, 100% deductible. Private entertainment expenses, eg a meal with family, non-deductible. Part business part private, apportionment needed.

This list is not exhaustive and some variations may apply in different circumstances, so people should contact MHK Chartered Accountants for clarifications on any particular circumstance they may have.

 

MHK Chartered Accountants specialise in business structuring and legally minimising all types of taxation obligations and offer a no-obligation discussion free of charge. For more information on this, and MHK Chartered Accountants, please go to http://www.aucklandaccountant.net.nz .