When it comes to entertainment and gifts for both staff and clients many businesses are confused about what is deductible and what is not.
Client Entertainment and Gifts
If you take a client out for lunch it is generally classified as entertainment and is not tax-deductible. This non-deductibility also means businesses can’t claim input tax credits for GST on these expenses.
Giving a client a gift is generally tax-deductible. However if the gift is consumed during a meeting with the client it is generally no longer deductible.
For example taking a client out for lunch – not deductible. Giving the client a bottle of wine as a gift – deductible. If said bottle of wine is consumed during the lunch the wine is no longer deductible.
Understanding this difference is crucial for favorable tax outcomes. Accurate entry of all information into your accounting software system (ie XERO) at the time will make it much easier for your accountant to ensure accuracy at the time of preparing your tax return.
Christmas Party Planning:
If you do not entertain your staff regularly when it comes to planning your Christmas party you will generally be exempt from fringe benefits tax if you keep costs below $300 per staff member.
Employers should weigh generosity against potential tax implications.
Businesses should be mindful of these nuances to navigate festive tax traps and optimise deductions while remaining compliant with tax regulations. If you need more information or clarification please contact us at Oculus.