The holiday season is here, and businesses are spreading festive cheer. Did you know some of your Christmas expenses may be tax-deductible or subject to Fringe Benefit Tax (FBT)? Here’s a quick guide to help you figure it out.

Staff Christmas parties

Hosting a party for your team is a great way to celebrate the year, but it’s important to know the rules around deductibility:

• On or off premises: Whether you host the party at your workplace or another venue, 50% of the costs are tax-deductible. This includes expenses like food, drinks, venue hire, and entertainment.
• Why 50%?: Inland Revenue (IR) applies this rule because these events have a personal and social element. Learn more about entertainment expenses on IR's website.

Gifts for employees

Christmas gifts for employees are generally 100% deductible but may be subject to FBT. Items such as gift vouchers and gift baskets containing food and drink that can be enjoyed at the employee’s discretion are ‘unclassified benefits’.

FBT will be payable if:

• The total cost of these benefits provided to each employee exceeds $300 per quarter (or $1,200 per annum for annual or income-year FBT filers); and
• The total value of such benefits provided in the previous 12 months to all employees is more than $22,500.

Gifts for clients

Showing appreciation to your clients? Here’s how you can claim a deduction for gifts:

• Non-entertainment gifts: Branded merchandise, books, or gift vouchers (excluding food or drink) are fully deductible.
• Entertainment gifts: Items like wine, food hampers, or event tickets fall under the 50% deductible rule.

Cash bonuses

Giving cash bonuses this Christmas? These are treated as salary payments:

• Tax treatment: They are subject to PAYE tax but are fully deductible as a business expense.
• Payroll requirement: Bonuses must be processed through payroll with the appropriate tax deductions (i.e. taxed at the ‘extra pay’ rate).

GST implications

For GST-registered businesses:

• Fully deductible expenses: Claim the full GST portion.
• 50% deductible expenses: Initially, you can claim the full GST, but an annual adjustment must be made to account for the non-deductible portion.

Record keeping

Accurate record-keeping is crucial to maximise your tax benefits and ensure compliance:

• Retain all invoices and receipts.
• Document the purpose of each expense to support your claims in case of an IR audit.

By understanding these guidelines, you can enjoy the festive season while staying on top of your tax obligations. Celebrate with your team and clients responsibly—and let your Christmas expenses work for your business!