If your to-do list includes planning season’s greetings and gifts to clients, take a moment to remind yourself about the tax treatment and what you can claim as business expenses.
What is and what isn't tax deductible
If your Christmas giving includes gifts to clients, remember that some gifts will be fully deductible while others will be only 50% deductible.
The rule of thumb with gifts is that if they consist of food or drink, you can only claim 50% of the expense as a tax deduction. If you are giving out gift baskets or hampers and some of the contents are food or drink, but not all, the food or drink items are 50% deductible, but the other gift items are 100% deductible.
When you come to claim the tax deduction, you will need to apportion the expense between the 100% deductible items and the 50% deductible items. And you will need to make a GST adjustment for expenses which are 50% deductible.
50% deductible items
Examples of gifts which are 50% deductible include:
- Bottle of wine or six pack of beer
- Meal voucher
- Basket of gourmet food
- Box of chocolates/biscuits
- Christmas ham.
Examples of where entertainment expenses are 50% deductible include:
- Taking customers, suppliers, and associates out for dinner or putting on a function for them
- The traditional staff Christmas party
- Shouting customers, suppliers, and staff to an event, like a sporting event or a show
- Taking them on a jaunt in your launch
- Giving them the use of your bach or time share apartment as a thank you.
100% deductible items
Examples of gifts which are 100% deductible include:
- Calendars
- Book or gift vouchers
- Tickets to a rugby game (but not corporate box entertaining)
- Movie tickets
- Presents (but not food or drink).
Other options
Instead of a Christmas party, you might give your employees restaurant vouchers to use at their discretion. This cost is fully deductible but is subject to fringe benefit tax (FBT), although there is an exemption of $300 per employee per quarter (a maximum exemption can apply). The same treatment applies to staff gifts (except for food and drink, e.g. wine), again fully deductible but subject to FBT under the ‘other benefits’ category.
Many firms pay their staff a Christmas cash bonus. These payments are classed as ‘extra emoluments’ and are fully deductible but have PAYE deducted at the employee’s marginal tax rate.
Talk to us if you’d like to check the tax treatment of your plans for this season’s gift-giving.
