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A Guide to Claiming Festive Functions, Events and Entertainment

Nov 28, 2023
christmas theme table setting

Festive gatherings are an integral part of the holiday season, enhancing camaraderie and building valuable relationships.

While they can be an investment, savvy navigation of tax rules regarding entertainment expenses can mean that you can optimising your festive expenses while still celebrating with you staff, clients, and customers.

We’ve compiled a comprehensive list that demystifies what's deductible and what isn’t, ensuring you make the most of your festive spending.

Entertainment

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.

Functions and events

Some entertainment expenses are fully deductible but some are not. Use these examples as a guide.

50% deductible

  • Christmas drinks for team members or clients in the office
  • Christmas drinks for team members or clients in the pub
  • Hire of a launch to entertain clients
  • Restaurants providing food and drinks to team members at a social function in their restaurant
  • Staff Christmas party on or off the business premises
  • Function hosted in a marquee at the races or in a corporate box at the rugby (includes the cost of tickets and any food and drink provided.)
  • A weekend away for the team at holiday accommodation in New Zealand (includes any food and drink provided.)

100% deductible

  • Donating food to a Christmas party in a children’s hospital
  • Providing morning and afternoon tea for your team
  • Providing entertainment, including food and drink at your promotional stand for the Cracker Christmas Festival
  • Holding the Christmas party in Fiji (woo-hoo!)

0% deductible

  • Taking your family (who don’t work with you in your business) out for dinner to thank them for being patient while you worked long hours and paying for this using the business credit card

 

REMEMBER: to keep your invoices and receipts for business entertainment expenses.

 

GST

If that’s not enough to think about, you will need to make a GST adjustment for entertainment expenses which are 50% deductible. This adjustment will be required to be made at the time your income tax return is filed. Of course, we can help and advise you on this.

Click here to download a printable PDF guide to claiming Christmas functions, entertainment and gifts.

If you’d like to chat with us about how these rules apply to your circumstances, call us on (06) 878 8824

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