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As we are approaching the Christmas party season, Greenlion have some advice on what is deductible and non-deductible. As they explain, entertainment expenses can be divided into ‘business’ (deductible) and ‘private’ (non-deductible), and deductible expenses must have been incurred in carrying on a business to gain gross income. Private entertainment expenditure is not deductible.
It is also important to be aware of the Fringe Benefit Tax (FBT) rules on gifts to employees. Many employers are aware of their FBT obligations on motor vehicles and discounted goods and services. However, gifts to employees can also be subject to the FBT rules.
Gifts of cash, or vouchers which can be redeemed for cash, are treated as additional remuneration. Other gifts to employees would usually be subject to FBT, and these include gifts of food or drink if the employee can choose when to enjoy them. Fortunately FBT is not charged on ‘unclassified fringe benefits’ such as these, so long as two exemptions are met.
The first exemption is the ‘general employee exemption’. This means that FBT is not charged so long as the ‘unclassified fringe benefits’ to a single employee do not exceed $300 per quarter. The second exemption is the ‘maximum employer exemption’ which means that the total ‘unclassified fringe benefits’ to all employees must not exceed $22,500 per year.
To be exempt from the FBT regime, an employer must meet both criteria. If you exceed either criteria, FBT is payable on the total value of goods and services gifted to employees in the current quarter. Rewarding staff is a great incentive to help keep them motivated and by utilising the above exemption, you can provide gifts to employees while staying clear of the FBT regime.
Regarding FBT on gifts and entertainment, 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. This is something to be aware of as 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, as a result we recommend sticking to one type of gift food and drink or other! For more information on accounting firms Auckland, business consultants and Xero accountants please go to https://www.greenlion.co.nz .