Do your plans for the festive season include functions to celebrate with clients and the team? What about gifts? If they do, here are some tips on the tax implications.
When you're entertaining clients or colleagues, some entertainment expenses are tax deductible while others aren't. It can be tricky working out what's deductible as a business expense and what isn't.
The basic idea is that an expense is business-related if you spend the money to help your business earn income. Most business-related expenses are fully deductible. If the expense doesn't help your business earn gross income, it's private and you can't claim it as a tax deduction.
It becomes a little trickier when there's an element of private enjoyment. You might think that the firm's Christmas party for clients is a business related expense and should be fully deductible because it's promoting your business, products or services. However: if your clients or employees have a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs. If anyone associated with the business has a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs Generally speaking, if there's an element of private enjoyment, the expenses (in addition to the food and drink) associated with events where you entertain clients and/or staff will only be 50% deductible. For instance, this would include the hire of crockery, glasses, waiting staff and music.
There are exceptions. Entertainment supplied for charity is 100% deductible. For instance if you throw a Christmas party for the children's ward at the local hospital, this is fully deductible. Entertainment enjoyed outside New Zealand is 100% deductible. If you take the team to the Gold Coast for Christmas (lucky them) it will be fully deductible. However, if they contribute towards the cost of their airfares (or anything else), you will need to reduce your expense claim by the amount of the contribution.
When you're entertaining clients or colleagues, some entertainment expenses are tax deductible while others aren't. It can be tricky working out what's deductible as a business expense and what isn't.
The basic idea is that an expense is business-related if you spend the money to help your business earn income. Most business-related expenses are fully deductible. If the expense doesn't help your business earn gross income, it's private and you can't claim it as a tax deduction.
It becomes a little trickier when there's an element of private enjoyment. You might think that the firm's Christmas party for clients is a business related expense and should be fully deductible because it's promoting your business, products or services. However: if your clients or employees have a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs. If anyone associated with the business has a greater opportunity to enjoy the entertainment than the general public, you can only deduct 50% of the costs Generally speaking, if there's an element of private enjoyment, the expenses (in addition to the food and drink) associated with events where you entertain clients and/or staff will only be 50% deductible. For instance, this would include the hire of crockery, glasses, waiting staff and music.
There are exceptions. Entertainment supplied for charity is 100% deductible. For instance if you throw a Christmas party for the children's ward at the local hospital, this is fully deductible. Entertainment enjoyed outside New Zealand is 100% deductible. If you take the team to the Gold Coast for Christmas (lucky them) it will be fully deductible. However, if they contribute towards the cost of their airfares (or anything else), you will need to reduce your expense claim by the amount of the contribution.
