OPINION: Christmas can be an expensive time for individuals and businesses alike.
In this column I will look at the tax treatment of Christmas-related expenses businesses may incur.
Generally, you can claim 50 per cent of your party expenses as an expense in your GST and income tax returns. Your expenses can include things like venue hire, food, drink and entertainment.
If you subsidise the cost of your Christmas function you can claim 50 per cent of the amount you contribute as an expense.
If your business does not hold a function but gives its employees and customers some sort of entertainment; for example a ticket to the One Day Cricket International at Queenstown on New Year's Day:
The expenditure relating to staff will be a fringe benefit and the business will probably need to pay fringe benefit tax (FBT) on this and make a GST adjustment;
The expenditure relating to customers is fully deductible.
Christmas bonuses for staff fall into two categories:
Cash payments; and
In most cases, payments to employees are very straightforward. They are usually salary or wages or an extra emolument and the employer is responsible for deducting PAYE and ACC levies and paying IRD and ACC. A Christmas cash bonus (taxed at the extra emolument rate) falls squarely into this category.
Care needs to be taken when announcing a Christmas cash bonus. For example, if the employer says that there will be a $1500 bonus, does this mean $1500 in the hand or $1500 before tax? It is best to avoid any issue by clearly spelling out whether the amount is gross or net.
Non-cash gifts to employees also have a tax consequence, but an FBT tax consequence. If the value of the gifts (plus other similar benefits) is below a very low statutory threshold of $300 per employee per annum, up to a maximum of $1800 per employer, they will not be subject to FBT. Examples include, hams, turkeys, food hampers, supermarket vouchers, and wine.
Gifts for clients
Gifts for clients other than food and drink are likely to will be fully deductible. If, on the other hand, the gift is food or drink related, the expenditure may only be 50 per cent deductible. Similarly, the cost of taking a client out for a pre- Christmas lunch or dinner should also generally be 50 per cent deductible. That is, both are subject to the entertainment regime.
Best to remember that it's the thought that counts!
* Murray McClennan is director of Tax Central Ltd, a specialist tax consulting firm. Emailing firstname.lastname@example.org for contact. The above comments are of a general nature only and are not a substitute for specific advice.
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