Christmas Entertainment

With the festive season upon us, many businesses will be looking forward to celebrating the end of the year with their team and clients. But what exactly are the tax implications?

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Entertainment

Broadly speaking, costs incurred to earn income are tax deductible. So for example if you were to provide food or drink to the general public as part of a marketing activity (and it is only a secondary part of the marketing activity - eg. free coffees at your business's trade display), this is generally tax deductible.

Where it becomes more complicated is where your employees or clients have a greater opportunity to enjoy the entertainment than the general public. For example, you might have drinks at the office or in a bar, invite the team out to a restaurant dinner, or hire out a boat for the evening. In these scenarios, as there is an element of private enjoyment, you can only take a deduction for 50% of the costs.

And if you take your family (who don't work in the business) out for dinner as a thank you for supporting you to work really hard during the year, this is considered private and no tax deduction is available at all.

In addition where only 50% of the cost is deductible for income tax, it is also only 50% claimable for GST, so don't forget to make this adjustment in your next GST return after your income tax return is filed.

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Gifts

Client gifts are generally 100% deductible, except where they have an element 'entertainment' (usually food or drink) in which case they are 50% deductible. For example, flowers or movie tickets are generally 100% deductible, but a hamper with gourmet food is only 50% deductible.

Staff gifts are generally deductible but potentially subject to FBT. There is however an exemption where the total cost is less than $300 incl GST per staff member in a quarter, and the combined value of benefits provided to all employees in a year under this exemption is less than $22,500. It is worthwhile checking any staff gifts to ensure they qualify for the exemption.

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‍Not sure how the entertainment rules apply to your situation?

Give us a call or drop us an email, we are happy to assist with any queries you might have.

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Please note that this information is of a general nature and specific advice advice should be sought for your situation.