Tax Deductions For the Good Times
A quick summary of the deductibility of entertainment cost including fully deductible expenses, 50% deductible entertainment expenses and gifts to clients.
Fully Deductible Expenses
Entertainment expenses that are fully deductible may include:
1. Meals while traveling on business
3. Meal allowances
50% Deductible Entertainment Expenses
Entertainment expenditure is limited to a 50% deduction if it falls within the following:
1. Corporate boxes
2. Holiday Accommodation
3. Pleasure Craft
4. Food & Beverages consumed at any of the above or in specific circumstances for example:
- Incidentally at any of the three types of entertainment above e.g. alcohol and food provided in a corporate box
- Away from the taxpayer’s business premises, such as a business lunch at a restaurant
- On the taxpayer’s business premises at a party, reception, celebration meal, or other similar social function, such as a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria)
- At any event or function, on or away from your business premises for the purpose of staff morale or goodwill, such as a Friday night ‘shout’ at the pub
- In an area of business premises reserved for use at the time by senior staff and not open to other staff, such as an executive dining room used to entertain clients
Gifts to Clients
The rule of thumb with gifts is that if they consist of food or drink, you can only claim 50% of the expense as a tax deduction. If you are giving out gift baskets or hampers and some of the contents are food or drink, but not all, the food or drink items are 50% deductible but the other gift items are 100% deductible. When you come to claim the tax deduction, you will need to apportion the expense between the 100% deductible items and the 50% deductible items.
If your Christmas giving includes gifts to clients, remember that some gifts will be fully deductible while others will be only 50% deductible. Use theses examples as a guide.
- Bottle of wine or six pack of beer
- Meal voucher
- Basket of gourmet food
- Box of chocolates/ biscuits
- Christmas ham
- Book or gift voucher
- Tickets to a rugby game (but not corporate box entertaining)
- Movie tickets
- Presents (not food or drink)
There are a number of exemptions from these rules, please contact the IRD if you are unsure or take a look at the IRD Entertainment Expenses (IR268) booklet for more information.