Tips on Tax Deductions for Employee Gifts and End of Year Functions

This post is by Giles Ellis, an experienced business coach and Director at GECA Chartered Accountants. If you need help with Tax advice, then Giles and the GECA team can help.

Not too long until Christmas and the season of gift giving and entertaining. And as a business owner, it’s likely you are considering what gifts to give to clients and staff, however, when doing your budgets, remember that some gifts can’t be accounted for as tax deductions.

Here is a brief outline of the general rules for Christmas entertainment and gifts.

Tax deductions for entertainment: 50%

Christmas parties for your employees, in-work celebrations, ‘shouts’ at the local pub and any kind of general entertainment with food and drink allows you to deduct 50% of your party expenses – claimable as tax deductions in your GST or Income Tax returns. The 50% entertainment rule also applies to your clients and suppliers who you may wish to celebrate a good year with.

If you shout them a ticket at a corporate box where they can eat and drink – that’s entertainment; so is accommodation in a holiday home or a journey in a corporate yacht. Basically, where food and drink is provided or consumed on your premises, at a local restaurant or hotel the 50% rule applies.

However, all offshore entertainment is 100% deductible so if you are feeling extra generous, consider taking your team or clients (or your accountant) to Fiji to celebrate.

Tax deductions for gifts and promotions: 100%

Christmas presents for your staff and clients are deductible provided they do not exceed the general employee exemption figure and the maximum employer exemption figure for Fringe Benefit Tax.

The current exemption figures are $300 per employee per quarter and $22,500 maximum employer exemption per annum. If you exceed the exemptions you will need to pay Fringe Benefit Tax on the total value of the benefits.

So that’s the rules in brief, but if you are still unsure or looking at other benefits for your staff throughout the year then give us a call and we’ll help make sure you are claiming the right tax deductions.

***