Since we know that you always forget what is deductible in relation to presents and parties over the silly season…
If you are giving gifts for clients, business associates or team members that consist of food or drink, you can only claim 50% of the expense as a tax deduction. If gift baskets or hampers contain some food or drink and some other goodies, the food or drink items are 50% deductible but the other gift items are 100% deductible.
Note that when you claim the tax deduction, you need to apportion the expense between the 100% deductible items and the 50% deductible items. Let us know the details.
The basics: an expense is business related if you spend the money to help your business earn income. Business-related expenses are fully deductible. If the expense does not help your business earn gross income, it is a private expense, not claimable as a deduction. Purely promotional events put your brand out there and are a a marketing expense for the business. But entertainment events such as Christmas parties inhabit a grey area sometimes.
You will need to make a GST adjustment for any entertainment expenses which are 50% deductible. This will be required when your income tax return is filed. We can help you with this.
If your promotional event is open to the general public, eg. sponsoring the local Santa parade, the event will be 100% deductible as a business expense. However, if the event is not open to the public, but by invitation to customers, business associates or team members, you can only deduct 50% of the costs.
If you are planning an event for charity, eg. a Christmas party at the local hospital or serving Christmas dinner at the local homeless shelter, then the entertainment supplied for charity is 100% deductible.
Entertainment outside of NZ
If you are celebrating a spectacular year end and taking your team to Raro for a weekend, entertainment enjoyed outside New Zealand is 100% deductible. However, if your team contributes to costs (for airfares or anything else), make a note to reduce your expense claim by the amount of the contribution.