For employers, the Christmas period is a time to splurge a little (or a lot) on your staff. This may include a Christmas party, taking the team out for lunch or providing Christmas gifts but you could also be liable to pay Fringe Benefit Tax (FBT) on those perks.
The FBT regime determines whether the benefits you provide to employees are a fringe benefit and therefore subject to FBT or fall under the entertainment expenditure regime.
The entertainment expenditure regime determines whether you can claim a full deduction or a 50 percent deduction for entertainment costs you have incurred.
For example, if any of the entertainment you provide staff includes attendance at corporate boxes at recreational events, holiday accommodation, expenditure on yachts or other pleasure craft, and certain food and drink, you only get a 50 percent deduction for these costs (we refer to this as the 50 percent entertainment expenditure limitation).
For any entertainment
not subject to the 50 percent entertainment expenditure limitation, in order to get a deduction, you still need to ensure it is deductible under the general deductibility rules (e.g. incurred in deriving assessable income).
We consider some of the more common business Christmas traditions below.
Staff Christmas party
Generally, expenditure on food and drink at the staff Christmas party is 50 percent deductible under the entertainment expenditure regime. Incidental expenditure such as hiring crockery, cutlery, wait staff, music or a band / DJ should also be 50 percent deductible.
Food and drink provided at an office Christmas party will generally not be a fringe benefit. It only becomes a fringe benefit if the employee:
- Doesn’t receive or use it in the course of employment (or as a necessary consequence of their employment); and
- Either chooses when to receive or use the benefit; or enjoys the entertainment outside New Zealand.
Staff Christmas morning teas
If you are hosting a Christmas morning tea for staff on your business premises, the 50 percent entertainment expenditure limitation should not apply (since the 50 percent limitation rule does not apply to light refreshments such as morning teas). This means the expenditure should be fully deductible to you.
FBT should also not apply to this benefit as the benefit is being provided on the employer’s premises and, therefore, falls under the FBT ‘on-premises’ exemption.
Staff Christmas gifts – food and drink
In addition to Christmas parties, lunches, and morning teas, you may decide to give each employee a small Christmas gift of food or drink such as a bottle of wine or a food hamper.
Gifts such as these are likely to fall under the FBT regime and will be subject to FBT since the employee can usually choose when to enjoy the gifts. Since the gifts are likely to attract a liability for FBT, the cost should be fully deductible.
However, bear in mind that certain fringe benefits falling under a minimum threshold are exempt from FBT. That is, if you pay FBT on a quarterly basis and give benefits that cost $300 or less per employee per FBT quarter (or $1,200 or less on an annual basis) and in the current and previous three FBT quarters you provided benefits of $22,500 (GST inclusive) or less for
all your employees, you are not liable for FBT on unclassified fringe benefits such as the Christmas gifts as outlined.
Other staff gifts
If you give employees a Christmas gift other than food or drink, such as a book, the cost of the book should be fully deductible for tax purposes.
Most gifts given to employees other than food or drink are likely to fall under the FBT rules. As such, FBT would be payable on the benefits provided. Again, bear in mind the FBT minimum value exemptions (described above) may apply.
Clients / business contacts
If you are thinking of giving or have given gifts (other than food and wine) to clients or business contacts, the cost of these gifts should be fully deductible for tax purposes.
If, on the other hand, the gift you are giving is food or drink related, the expenditure may only be 50 percent deductible since there is deemed to be a private benefit.
The cost of taking a client out for a pre-Christmas lunch or dinner should also generally be 50 percent deductible due to a deemed private element.
Amidst the flurry of trying to meet business deadlines and getting through (and hopefully conquering) the Christmas shopping list, there is plenty to think about before the Christmas break.
If you have any questions, please contact your
business advisor.
Prepared by Scott Keene, Team Manager, Moore Walker Davey Searells