With the end of the year approaching, many businesses are beginning to consider how they’ll celebrate the festive season with their employees. Whether you’re planning an end of year party, a Christmas gift or a trip away together, it’s important to understand the rules for claiming business entertainment expenses. Read on for our guide.
What are entertainment expenses?
Entertainment expenses are costs you’ve paid for your employees or customers to be entertained. These can include food and drink, social events and parties, corporate boxes, trips, gifts and freebies, accommodation, and more.
There are different rules depending on the type of business expense you are claiming. These rules include, expenses that are 50% deductible, expenses that are 100% deductible, as well as expenses that are 100% deductible but liable for Fringe Benefit Tax.
What expenses are 50% deductible?
Entertainment expenditure is limited to a 50% deduction if the cost provides both a private and business benefit. This includes entertainment away from the business premises or out of usual working hours.
What expenses are fully deductible?
Fully deductible entertainment expenses are those that are considered completely business related. In some cases entertainment expenses may be only 50% deductible, however rules may mean they become 100% deductible. It is important you read the rules carefully, for a comprehensive summary see the IRD Entertainment expenses guide – IR268 here.
Fringe Benefit Tax
In some circumstances, an entertainment expense can be 100% deductible and be subject to fringe benefit tax. This is the case when an employee receives something because of the work they do such as, an employee receives a restaurant voucher or a weekend away due to good performance.
Where you’re registered for GST, you can usually claim the full GST portion on all entertainment expenses throughout the year. If the entertainment expenses are only 50% deductible, you need to make an adjustment once a year for the 50% non-deductible portion.
The GST adjustment is calculated by:
This needs to be returned in the GST return in the period your income tax return is filed or due to be filed.
Don’t forget to keep a record of invoices and receipts for expenses to make claims. You should also keep a record of the names of the people entertained and the reason for the entertainment.
How can Haven Accounting help?
At Haven Accounting we can provide you with the right taxation advice to help you understand your tax obligations and keep your business compliant. Get in touch with us today to discuss how we can help you.
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