That time of year is fast approaching… Yip, the Christmas chaos is upon us. Whether you’re the type to have your tree up in November or the one rolling your eyes at yet another round of cheesy Christmas tunes – one thing for sure among business owners is that things are about to get hectic with the extra load of thank you gifts to buy and a perhaps a staff Christmas party thrown in the mix.
Confused about what you can claim as a business expense at this time of the year? We’ve got your back. In this article, we break down the nitty-gritty of what you can claim when it comes to staff gifts, staff bonuses, Christmas parties, client gifts and charitable donations. Because no one wants to be thinking about the IRD at this time of the year.
What qualifies as a business expense?
Business expenses are the costs that you incur to run your business to generate revenue. For example, a builder who needs tools, or a graphic designer who needs a laptop – these are essential to the day-to-day running of your business and are considered a business expense.
Businesses can claim tax deductions on some of their business expenses, which means less tax to pay at the end of the year. However, the IRD has strict criteria on what is or isn’t considered a tax-deductible expense.
Gifts and bonuses for staff, client gifts, donations and Christmas celebrations – what business expenses can I actually claim?
Staff Gifts
During this time of year, you’re looking at ways to wrap up the year on a positive note and thank your team for their hard work. While this is a great way to show your appreciation, it’s good to be mindful that the type of gift you give and its value, will determine how the purchase can be claimed as a business expense and what, if any, tax is payable on it.
Something that you need to be mindful of, is Fringe Benefit Tax (FBT). FBT is a tax that is payable by employers on any non-cash benefits provided to or enjoyed by employees as a result of their employment. However, luckily, most gifts will be exempt from FBT provided they meet the following criteria:
- Benefits per team member are not more than $300 per quarter (for employers that pay FBT quarterly), or $1,200 per annum (for employers that pay FBT annually); and
- Benefits to all team members are not more than $22,500 per year.
This means that assuming the above criteria are met, and the gift is rewarding your team for their work during the year, things such as a gift hamper, a Christmas ham, boxes of chocolates, a bottle of wine or a gift voucher for a massage or dinner out, are 100% deductible and not liable to FBT.
TOP TIP: If you’re a business owner, who is also paid via payroll with PAYE deducted, you can also receive the above FBT gift allowance each year/quarter (note this can’t be a cash bonus – see below).
Staff Bonuses
If you are giving staff a cash bonus, then this needs to be processed via your payroll system and PAYE and other applicable taxes will need to be deducted, like any other wage or salary payment.
Christmas parties
If you’re planning to throw a Christmas party, take the team out for an end-of-year lunch or out for a day of team building, whether this is onsite or offsite, this expense is 50% deductible. As well as your food and drinks and any activities involved, this rule also applies to any equipment, gear and accessories used to support the event such as wine glasses, entertainment, and venue hire.
It’s important to stay on top of your record keeping to ensure you’re able to claim your entertainment expenses – not only during the Christmas period but throughout the year.
When it comes to claiming your entertainment expenses, the IRD requires specific details to be recorded, including:
- The date of entertainment expenses incurred
- The name/s of people entertained
- The entertainment reasons – as above
TOP TIP: Don’t try and rely on your memory – the easiest way to record these details is to jot the details on the front of your receipt so it’s easy to remember the details when it comes time to do your books.
Gifts for clients
Not all gifts are considered equal when it comes to claiming them as a business expense. Usually, you can claim the cost of gifts as a business expense. However, if the gift is for food, drink or entertainment (or even vouchers for these things), then only 50% of the cost is tax deductible.
Things get even trickier when you’re giving gift baskets or hampers that contain food or drink as well as other items; the food and drink are 50% deductible, but the other items are 100% deductible. To claim these correctly you’ll need to apportion the expense between the 100% and 50% deductible items (and make a GST adjustment for the items that are 50% deductible).
Here’s a list of some common client Christmas gift examples below:
| 50% Deductible Items | 100% Deductible Items |
|---|---|
| Food and drinks Christmas hamper of food and wine Chocolates Restaurant voucher Bottle of wine or beer Exclusive tickets to an event (VIP access) | Most non-food items Books, magazine subscriptions Gift voucher (excluding food) Flowers Movie tickets Tickets to an event (general admission) |
Charitable Donations
Christmas can be a tough time for many and if you want to spread the cheer and make donations of gifts, food or cash to a registered New Zealand Charity then these are 100% deductible.
Focus on entertaining, while we take care of the numbers
Let’s be honest, you’d much rather be entertaining your staff and clients than spending your evenings doing your books. So if this all sounds too much – leave the stress behind, free up your time and hand your books over to Honeybooks, our done-for-you bookkeeping packages might be just what you need.
Wanna chat numbers?
Book a 30-minute chat with us; it could be the most profitable 30 minutes of your year.
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