It’s coming up to that time of year when you might be planning a staff Christmas party. It's great for morale and a chance to mark the end of the year. But what are the tax considerations?
You may be able to claim as business expenses events such as Christmas functions or giving gifts to employees.
However, you may not be able to claim all of the costs, and they may also be subject to fringe benefit tax (FBT). FBT is a tax paid on benefits that workers receive as a result of their employment.
You may be able to claim 50% of your party expenses in your GST and income tax returns if the expenses are related to your business. But there’s also a significant private element.
Party expenses you can claim 50% of can include:
You can generally claim 100% of the cost of gifts, such as food baskets or event tickets, as a business expense. But you may need to pay FBT on such gifts.
If you provide other types of goodies, like accommodation in a holiday home, use of a corporate yacht or lunch at a restaurant, then these come under entertainment expenses – and are 50% deductible as long as they’re business expenses.
If you give your employees some sort of entertainment – like a voucher to use at any time – you may need to pay FBT.
There are detailed rules about FBT (external link) , including for entertainment expenses. There are some thresholds, so you may not always have to pay FBT if you only provide minimal fringe benefits. Check Inland Revenue's Fringe benefit guide (external link) (IR409) to be sure.
If you provide Christmas food and drinks at a local venue, the cost is not subject to FBT - because employees can't choose when and where to enjoy the benefit. However, the rules for entertainment expenses will apply. Inland Revenue's Entertainment expenses guide (external link) (IR268) will help.
Check out our Tax and accounting section for more on FBT.
Are you thinking about some Christmas charity? You can deduct 100% of the cost of entertainment you give to the general public for charitable purposes. For example, if your company donates food for a Christmas party at a children’s hospital, that expense is 100% deductible.
And if you or an employee plans to use a business vehicle for a private trip over the festive period, check to see if you have to pay FBT on this benefit.