Home > Updates > Unwrapping FBT: Christmas tax guide for New Zealand businesses
As the Christmas countdown begins, many businesses are getting into the festive spirit with Christmas parties, gifts, and bonuses. While it’s a busy time of year, it’s worth taking a moment to consider the potential tax implications, particularly Fringe Benefit Tax (FBT), to avoid any unexpected surprises in the new year.
Fringe Benefit Tax (FBT) is often associated with company vehicles or substantial employee perks, however it also extends to a wide range of non‑cash benefits, including gifts and vouchers provided to employees. These benefits can also give rise to a tax liability for the employer.
However, there is a key exemption called the ‘de minimis’ threshold, which means FBT does not apply if:
Christmas parties remain a highlight for many New Zealand businesses, but this year brings some fresh developments for your tax checklist. Hosting a festive event for staff, families, or clients—whether at your office, an offsite venue, or even a unique location like a launch or sporting event—still falls under the entertainment tax regime, typically overriding FBT. In most cases, only 50% of these expenses are tax deductible, regardless of the timing or the location.
Key practical points to consider for the current quarter:
Regarding GST and employee contributions:
Examples:
It is important to keep detailed records and invoices for all entertainment expenses, clearly noting any employee contributions. Inland Revenue expects clear evidence for deductions claimed to avoid disputes, and good documentation will make your year-end compliance easier.
No major changes to these specific deductibility and GST adjustment rules have been enacted in 2025. However, Inland Revenue is currently consulting on modernising the FBT regime, which could affect entertainment expenses in the future. For now, businesses should continue applying the existing rules carefully and seek professional advice if needed.
If you’re covering transportation for staff to and from the event, and attendance is voluntary, there may be a potential FBT liability, especially if employees can choose how and when they travel.
If an employee books their own taxi or rideshares and is reimbursed, that reimbursement counts as cash income and is subject to PAYE rather than FBT. It must be grossed up and processed through payroll.
To avoid this, it’s best for employers to organise transport directly (for example, hiring a bus with fixed departure and return times). In that case, the cost is generally treated under the entertainment rules, alongside other event expenses.
Gifts, prizes, and vouchers for employees are typically deductible as staff expenses, but you must monitor the de minimis FBT thresholds noted above. If these thresholds are exceeded, FBT is payable on the total value of all benefits.
A key FBT development this year has been a clarification that the provision of different types of gift cards to employees can have differing tax treatments under PAYE vs. FBT rules. The de minimis exemption may not apply if the gift card is technically subject to PAYE (Visa Prezzy cards are a common example of this).
Inland Revenue acknowledges many employers treat the provision of any gift card as being subject to FBT, rather than PAYE. Future looking, this law is anticipated to be amended by way of allowing employers elect loop cards to be treated as fringe benefits. For any gift cards provided this year, we recommend discussing the correct interim tax treatment with us or your usual Nexia advisor.
Gift vouchers provided to remote or home-based employees (in lieu of attending a Christmas function) are treated as FBT benefits— and not entertainment expenditure. This is because employees can use them at their discretion. These, too, are now subject to our comments above regarding gift cards and PAYE vs. FBT.
The deductibility of client gifts depends on the nature of the gift:
All cash bonuses, regardless of amount, must be processed through payroll and are subject to PAYE at the employee’s marginal tax rate. The employer must gross up the payment, deduct PAYE, and report it accordingly.
Genuine donations to registered charities remain fully deductible against taxable income (subject to charity status confirmation). The costs of entertainment provided for charitable purposes to the general public are fully deductible.
It has been an eventful year for FBT, with a range of important updates affecting how benefits are taxed and reported. While there have been incremental changes rather than sweeping reform, further developments are on the horizon.
If you’d like more information about FBT or entertainment tax rules over the festive season, please get in touch with your Nexia advisor.
Nexia New Zealand is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of chartered accounting, business advisory, corporate advisory, tax, audit and liquidation services.
Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.
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