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If you’re planning to give staff or customers gifts this Christmas, some of your expenses may be tax deductible.
While the Covid environment means many businesses will be thinking differently about Christmas functions this year, it’s worth being aware of the tax considerations for different types of entertainment.
Below we help you understand what you need to know about tax during the festive season.
Gifts given to staff are usually fully deductible and exempt from Fringe Benefit Tax (FBT) where the total cost is less than $300 inclusive of GST per staff member in one quarter. A tax deduction and GST credit can also be claimed. To qualify, gifts should involve ‘non-entertainment’ expenditure and could include gift vouchers, hampers, flowers, and wine. Just bear in mind that the total combined benefits provided to all employees in a year cannot exceed $22,500.
As for entertainment, if you invite your team to an event that qualifies as a business-related entertainment expense which is only 50% deductible (see examples below), you are not liable for FBT as well. So, if you are entertaining employees at a social function or taking a client out for a meal and the expenses are only 50% deductible, it isn’t subject to FBT.
Bonuses need to go through the payroll system and PAYE and other applicable payroll taxes need to be deducted, like any other wage or salary payment. A bonus payment is classed as a ‘lump sum’ payment and is taxed at a flat rate based on what income range the employee falls into.
When giving gifts to clients, some gifts are fully tax deductible while others will be only 50% deductible where they include food and drink or other ‘entertainment’.
These examples can be used as a guide:
Like client gifts, some entertainment expenses are 50% tax deductible, while others are fully deductible.
Here are some examples to help you:
Don’t forget that you need to make a GST adjustment for entertainment expenses which are 50% deductible. This adjustment can be calculated at the time your income tax return is prepared and returned in your next GST Return.
The tax deductibility of Christmas giving can be a difficult area to navigate. If you’d like more information, please contact us online or speak to your Nexia advisor.