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The Ultimate Guide to Entertainment Expenses in 2019

The ultimate guide to entertainment expenses in 2019

December 17, 2019

The Ultimate Guide to Entertainment Expenses

With the festive season upon us, we thought we would create a comprehensive guide to equip you with the knowledge you need when it comes to deductions for presents and parties.

The good news is, if you provide entertainment for your team, clients or any other business contact, some of your business entertainment expenses are tax deductible.

Let’s take an in-depth look at what can be claimed.

What qualifies as a fully deductible expense?

  1. Meals while travelling on business

The cost of a meal while travelling on business is fully deductible provided there are no business contacts present.

  1. Conferences

The cost of food and drink at a conference or business course, which continues for four hours or more, is fully deductible.

  1. Meal allowances

A tax-free meal allowance paid by an employer to an employee working overtime is fully deductible.

  1. Executive dining facilities

The cost of a light meal provided to employees in an area reserved for senior management is fully deductible when the meal is provided during the course of the employees’ normal duties.

  1. Morning and afternoon teas

Morning and afternoon teas provided on business premises, that are not provided in an area reserved for senior staff, are fully deductible unless provided at a party, reception, celebration meal or similar social function.

  1. Promotions open to the public and trade display

Entertainment provided by a business as part of a function open to the public, or at trade displays to advertise the business, are fully deductible.

For example: The costs of providing drinks and nibbles at a trade display open to the public.

  1. Off-shore entertainment

Entertainment enjoyed outside New Zealand is fully deductible.

  1. Monetary sponsorship

The cost of sponsoring entertainment is fully deductible where the sponsorship is principally for promotion or advertising to the public.

  1. Entertainment as part of your business

Providing entertainment in the ordinary course of your business is fully deductible.

For example: the cost incurred by a restaurant in providing meals to patrons.

  1. Samples

The cost of providing samples for advertising or promotional purposes is fully deductible.

  1. Charitable entertainment

Entertainment provided to members of the public for charitable purposes is fully deductible.

For example: A business donates food to a Christmas party in a children’s hospital.

  1. Reviewers

The cost of providing entertainment to a person to review your business for a paper, magazine, book or other medium, is fully deductible.

Deductible entertainment guide for New Zealand

50% Deductible entertainment expenses

The following types of entertainment are limited to a 50% deduction:

  • The cost of corporate boxes, corporate marquees or tents.
  • The cost of accommodation in a holiday home or time-share apartment.
  • The cost of hiring a pleasure craft.
  • The cost of food and beverages enjoyed in any of the three locations listed above, or food and beverages enjoyed on/off the business premises for a social event.
  • Food and beverages enjoyed off the business premises. As an example: taking customers out to a business dinner, or taking employees out to lunch at a restaurant.
  • Food and beverages enjoyed on the business premises. As an example: Friday night drinks, or Christmas lunch held on the premises for employees.

Goods and Services Tax (GST)

Where you are registered for GST, you can claim the full GST portion on entertainment expenses that are fully deductible. If the entertainment expenses are only 50% deductible, you need to make an adjustment once a year for the 50% non-deductible portion.

The GST adjustment is 15% of the non-deductible entertainment expenses, exclusive of GST. This needs to be returned in the GST return for the period your income tax return is filed or due to be filed (whichever is the earlier).

Fringe Benefit Tax (FBT)

Generally, entertainment expenses that come under the 50% deductibility rules are not subject to FBT. However, if employees (including shareholder-employees) can enjoy an entertainment benefit:

  • when they choose, or
  • outside New Zealand,

and the benefit is enjoyed outside their employment duties, this benefit will be subject to the FBT rules (and is usually fully deductible).

Entertainment Expenses in New Zealand

Entertainment expenses that are not deductible

There are some entertainment expenses that are not deductible. Where the expense is not related to generating income for your business, it will not be deductible. For instance, it would not be deductible if you take your family (who don’t work with you in your business) out for dinner to thank them for being patient while you worked long hours and pay for this using the business credit card.

Those everyday expenses – the context is important

Sometimes it can be surprisingly difficult to work out whether an expense is deductible or not. You need to look at the context. It can be particularly confusing with food and drink.

Lunch Deductible?
A self-employed person out on a job all day (e.g. courier or gardener) buys lunch
This is considered to be a private expense and isn’t deductible
Not deductible
The same person has to travel to another town for a job
They buy lunch which they eat on their own, in a break from the job
100% deductible
The same person has to travel to another town for a job
They buy lunch which they eat with a business contact as a guest
50% deductible

 

Bottom line: don’t try to claim the lunch-time pie on the go during a normal working day.

Coffee is another example. With coffee being round $5 a pop now, it adds up really fast. Allowing for annual leave and public holidays, one a day is still more than $1,100 a year! But, depending on who is buying the coffee, for whom and where it’s drunk, it may or may not be deductible:

Coffee Deductible?
A business owner buys coffee for staff working on a building site
While the worksite is not their usual business address, it counts as current business premises (being a temporary workplace).
100% deductible
A business owner buys coffee and takes it to the client’s premises to drink with them (buying one for him or herself as well of course)
Food and drink provided away from your business premises is only 50% deductible.
50% deductible
A self-employed person or a shareholder employee buys coffee for morning and afternoon tea and drinks it at work
This is considered to be a private expense and isn’t deductible.
Not deductible

 

Good records are important

To support your claims for business entertainment expenses, you should keep invoices/receipts, attaching a note recording the purpose of the expense, who was present and their relationship to your business.

We have created a handy fact-sheet that you can use as a reference.

Fact sheet: Entertainment expenses table

50% deductible 100% deductible
1. Friday night drinks for team members or clients in the office
2. Friday night drinks for team members or clients in the pub.
3. Hire of a launch to entertain clients.
4. Restaurants providing food and drinks to team members at a social function in their restaurant.
5. Sponsoring local sports teams and receiving tickets to their corporate box in return. 50% of the value of the tickets would be deducted from the total sponsorship.
6. Sponsoring a sports team with a meal for the team at their grounds after each game.
7. The staff Christmas party on or off the business premises.
8. Taking a client out to dinner whether in your hometown or while out of town on business in New Zealand.
9. A weekend away for the team at holiday accommodation in New Zealand. Includes any food and drink provided.
10. Dinner for a Sales Rep while out of town selling and no client present.
11. Donating food to a Christmas party in a children’s hospital.
12. Providing entertainment, including food and drink at your promotional stand for the local Christmas Festival open to the public.
13. Employee’s salary package includes a taxable allowance for entertaining clients.
14. Golf club subscription for a business owner paid by the Company. *
15. Gym membership for a team member paid by the employer. *
16. Dinner for a journalist while reviewing your business for their column.
17. Morning and afternoon tea for your team. **
18. Sandwiches provided at a lunchtime meeting of supervisors.
19. Sponsoring a local sports team.
20. Taking a client out to dinner while you are outside New Zealand on business.
21. Holding the team Christmas party in Fiji.

 

* Note that:

  • Expenses incurred in providing golf club subscriptions and gym memberships to employees are 100% deductible and not subject to the Entertainment Expense 50% limitation. However, these expenses are subject to FBT
  • If the business pays an employee’s golf club or gym membership subscription, it will be taxable to the employee under the PAYE rules. If the business has a corporate subscription that any employee can use, this will be subject to FBT.

** Note that

  • Light refreshments such as morning and afternoon teas are 100% deductible. This is usually conditional on being provided at the business premises. A coffee with an employee off-site in a café will only be 50% deductible
  • However, where the business typically earns income by projects on construction or other project sites, while the worksite is not the usual business address, it is a temporary workplace and will be deemed to be provided on business premises. If a business owner buys coffees/morning tea for staff working on a building site, it’s 100% deductible
  • Food and drink provided away from your business premises to share with clients and other business contacts is only 50% deductible. Coffees a business owner buys to take to a client’s premises for a meeting are 50% deductible
  • Food and drink you buy for yourself is considered to be a private expense and isn’t deductible, whether you are a business owner, a self-employed person, a shareholder employee or an employee. The lunch-time pie on the go, the coffee you buy in the morning to bring into the office are not deductible

 

We acknowledge that the rules are complex. If you are still unsure, specifically on big ticket items, please ask for our advice.

 

 

About Kylie Liew

Kylie turns vision into value using digital innovation and strategic business planning to drive business success.

As a Qualifying Principal and member of Chartered Accountants Australia and New Zealand (CA ANZ), MYOB Certified Consultant and Young Accountant of the Year 2019, Kylie's combined history of providing Business Advisory and Accounting services to clients, together with experience in Internal Change Management and Business Development means she understands the complexities of SME ownership.

Digital disruption of the Accounting industry presents a unique opportunity to redefine the role of the Business Advisor.  Kylie is committed to challenging the stereotype and exploring innovative ways to achieve growth and create success.

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