Entertainment Expenses - Know before you Claim

Posted on 01 Dec 2021

If you're spending money on entertainment for work purposes, whether it's with clients or staff, you need to know the rules around claiming entertainment expenses. Expenses will either be a) fully deductible (100%) and not liable for FBT or b) 50% deductible and not liable for FBT or c) 100% deductible and liable for FBT. For this purpose, the IRD provides specific rules regarding different types of entertainment expenses which we can help you to navigate.? As a guide, we've listed the examples from the IRD below. We recommend speaking to one of our team if you need further clarification on this. Entertainment expenses will be 100% deductible and not liable for FBT if they're completely business related.

Entertainment Expenses, Business

100% Deductible, not liable for FBT:

This includes:

• meals an employee buys while travelling on business (unless it is with an existing or potential business contact, or the meal is a celebration, reception or similar event, in these situations it would only be 50% deductible)
• food and drink provided at a conference, education course or similar event that lasts at least 4 hours (unless the conference is mainly for entertainment, in which case it would only be 50% deductible)
• light meals provided in a dining room for senior managers and consumed as part of their duties (such as sandwiches provided during a board meeting)
• entertainment that promotes your business (as long as the public has the same access to this as your employees, business contacts or people associated with the business, if the public has less access it would only be 50% deductible)
• entertainment that is only a secondary part of either a function that is open to the public, or any trade display (for example, serving coffee at your business's trade display)
• freebies promoting your business (such as branded stationery, but excluding any given to employees or people associated with you, these are only 50% deductible)
• entertainment provided to someone who's going to review it for publication (such as giving a free meal to food critics)
• entertainment provided at a discount, if your business regularly provides entertainment at market prices (for example, offering half-price meals at your restaurant)
• entertainment enjoyed outside of New Zealand.

50% deductible, not liable for FBT:

Examples include:

• entertainment at sports or cultural events (for example, a corporate box)
• business use of a holiday home
• hiring a boat, and providing food and drink to people on it
• food and drink you provide for social events (such as parties) or in an area set aside for senior employees (though there is an exception for 'light meals' consumed as part of the manager's duties, which are 100% deductible)
• gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them (for example, if you give a bottle of wine to each customer who buys a car off you)
• 'supporting expenses' for other entertainment that's 50% deductible, such as hire of wine glasses and wait staff for a party

Expenses that are 100% deductible and liable for FBT: Includes those that are received by employees because of the work they do. Examples of this include rewards for good performance, such as a restaurant gift voucher or weekend away.

Entertainment Expenses that are not deductible

There are some entertainment expenses that are not deductible. Where the expense is not related to generating income for your business, it will not be deductible. For instance, it would not be deductible if you take 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 pay for this using the business credit card.  

GST

You can claim the full GST portion on all entertainment expenses you have incurred throughout the year. However, if the entertainment expenses are only 50% deductible you will need to make an adjustment once a year for the 50% non-deductible portion, or alternatively claim the correct portion throughout the year as the expenses are incurred.

FBT

If employees can enjoy an entertainment benefit at their discretion outside their employment duties, this benefit will be subject to FBT. Any entertainment expenses that come under the 50% deductibility rules are not liable for FBT. Again, if you're not sure or need more advice around entertainment expenses check in with us first. NB: Please note this advice relates to employees (including shareholder employees), if you are self-employed then some of these expenses are not deductible? There are no FBT rules for self employed persons as these relate to employees.