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Tax Deductibility of Staff Gifts

Updated: Mar 11

As we get closer to Christmas many of you will be considering work-dos and gifts for your employees. The entertainment and fringe benefit tax (FBT) rules and how they apply to specific situations can be confusing so here is a quick summary.


Bonuses


Any cash benefit paid to employees is subject to the PAYE regime. PAYE must be withheld from the payment and paid to the IRD with their usual wages. The most common example of this is a bonus, and there are specific rules that relate to paying a bonus that you need to be aware of (not covered in this article).


Overview of the rules


The entertainment rules restrict the deductibility to 50% in situations where there is both a private and business benefit. This includes expenditure on recreational events off farm and captures food and drink in most situations, regardless of where it is consumed.

The FBT rules apply where the employee can choose when to enjoy the gift and it is unrelated to their employment duties. In these situations, the expenditure is 100% deductible, but FBT must be paid to the IRD on the market value of the gift. There is an exclusion (de-minimis exemption) from having to pay FBT when the value of the gift is less than $300 per quarter (ie. every 3 months) per employee. The maximum exempted value as an employer is $22,500 per year. If you miss a quarter you cannot do a catch up (ie. spend $600 per employee) in the next quarter.


Specific examples

  • Meat for the freezer – subject to FBT rules, 100% deductible, de-minimis exemption applies

  • Fishing charter, christmas party off farm, holiday accomodation - subject to entertainment rules, 50% deductible

  • Vouchers – subject to FBT rules, 100% deductible, de-minimis exemption applies (note that vouchers are not deductible for GST as they are considered “cash” not a good or service)

  • Food/drink at work, offsite or gifts of food/drink – subject to entertainment rules, 50% deductible

  • Gifts such as tools, hunting and fishing gear, electronics – subject to FBT rules, 100% deductible, de-minimis exemption applies

The IRD considers the provision of food and drink in any circumstances to be 50% deductible. The exception is “rations” which are light refreshments provided on farm for morning or afternoon tea. These are 100% deductible.


In summary, to maximise deductibility for gifts, the order of preference is:


1. Gifts such as tools, hunting and fishing gear, electronics – 100% deductible for income tax and GST

2. Vouchers – 100% deductible for income tax, not GST deductible

3. Food/drink


Work dos are always 50% deductible in all circumstances so choose whichever is the most fun!


This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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