Sometimes it's Better to Receive than Give...

‘Tis the season to be jolly …. and sometimes that can take the form of providing some “goodwill” to your staff or clients.

And the taxman, who probably isn’t used to customers expressing their appreciation in a tangible form, wants to share in your generosity by insisting that you give them part of what you spend.  They do this by charging FBT or restricting the tax deduction you can claim to 50% of the cost, because the taxman doesn’t like it when you give something that might provide a bit of pleasure to the receiver.

Fortunately the taxman only expects you to share the cost of a few types of goodies with them.

You are not penalised by giving a favoured client a bunch of flowers, movie tickets, calendars, a cuddly toy, or tickets to a concert or rugby game; - that is, so long as the tickets don’t have them sitting away from the hoi polloi and in the comfort of a corporate box, marquee, tent, or similar exclusive area.

A good example is tickets to rugby world cup games.  If you gave a client tickets for seats that are available to the general public the cost will be fully tax deductible.

But if you hosted a client in a corporate box or gave tickets with access to a corporate box, or invited them to enjoy your hospitality in a marquee set up at the game venue, the costs (including food and drinks) will only be 50% tax deductible.

If you provide food or drink by taking a client out to a restaurant or bar, at a social gathering or business lunch, shouting your staff drinks in or away from the office, or paying for the staff Christmas party, the costs will only be 50% tax deductible.

If you give your staff food or drink and they can choose when to enjoy your generosity, the cost will be fully tax deductible but will fall within the FBT regime.  But if the value of the food or drink (and other free or discounted goods and services) is less than $300 per employee for the quarter (and the total for all employees for the 12 months is not more than $22,500) no FBT will be payable on the gift.

But if you give a client a bottle of wine or a box of chocolates as a token of appreciation for their custom during the year, we say the cost will be fully tax deductible.  In our view the 50% limitation doesn’t apply as the mere giving of the gift does not have any entertainment or social aspect to it.  We are aware that many businesses treat such gifts as only 50% tax deductible, but the IRD has confirmed in their December 2011 “Business Tax Update” that the cost of such gifts is fully tax deductible.

From our friend Gavin Stewart at NSA tax

www.astillhawke.co.nz