Get tax right on work functions

Photo / APN

PROBLEM

This year I'd like to put on a proper staff and client Christmas function and maybe some gifts. Can you clarify the rules around tax deductibility in this area?

SOLUTION

Simon Peacocke, of BDO Auckland, says it is important to get tax right on work functions to avoid late payment penalties, interest and questions from the IRD on other parts of the business.

"The first rule is that to be deductible for tax purposes, either 100 per cent or 50 per cent, the expenditure must relate to the running of your business - which can include staff, clients and prospective clients and suppliers."

Not all entertainment spending will be 100 per cent tax deductible.

"If you put on a barbecue and some drinks for the staff after work, generally, the cost is 50 per cent tax deductible. Likewise if clients, suppliers, families or even if the accountant attends."

Ditto a function at a nearby pub. A formal Christmas function at which the business subsidises the entertainment, food and drink is also only 50 per cent tax deductible.

"If your employees make a contribution, that is deducted from the cost before working out the amount that can be claimed as an expense," according to Peacocke.

The cost of gifts such as food or wine to your staff or clients falls outside the rules - they are 100 per cent deductible.

Gifts to staff may also result in fringe benefit tax (FBT). "If you give your employee a voucher to a restaurant, it will be subject to FBT. But there is an exception. You don't have to pay FBT if the benefits given to employees in a quarter are less than $300 each and no more than $22,500 for all employees in a 12-month period."

Talk to your accountant to clarify any expenditure you are contemplating.