A guide to entertainment expenses

Cassie Burt | 3 MIN READ September 18, 2023

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.

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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. 

Examples include: 

  • Entertainment at sports or cultural events, such as hiring a corporate box.
  • Holiday accommodation.
  • Hiring a recreational boat.
  • Gifts of food and drink that are enjoyed privately by the person who receives them.
  • Food and drink provided for social events or in an area set aside for senior employees.
  • Any support expenses, such as hiring wine glasses or wait staff at a work party. 

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.

Examples include: 

  • Meals an employee buys while travelling on business alone. 
  • Food or drink provided at a conference, education course or similar event that lasts at least 4 hours.
  • Light meals provided in a dining room for senior managers and consumed as part of their duties.
  • Entertainment that promotes your business publicly. The public must have the same access to the event as employees.
  • Entertainment that is only a secondary part of either a function that is open to the public, or any trade display.
  • Freebies promoting your business, such as branded merchandise, but excluding any given to employees or people associated with you – these are only 50% deductible. 
  • Entertainment provided to someone who is going to review it for publication, such as a free meal provided to a food critic.
  • Entertainment provided at a discount, if your business regularly provides entertainment at market prices, such as a half price meal provided at a restaurant. 
  • Entertainment enjoyed outside of New Zealand. 

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.

GST

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.

Keeping records

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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