Are you entertainment expenses tax deductible or not?

In the realm of business expenses, understanding which entertainment expenses are tax-deductible and how they intersect with fringe benefit tax (FBT) is crucial. Let's break it down for you.

Understanding the Fringe Benefit Tax (FBT) Link:

When an entertainment expense offers benefits relished by employees, it might attract the fringe benefit tax (FBT).

Broadly, there are three classifications for business entertainment expenses:

Fully Deductible & Exempt from FBT:

These are expenses that are entirely aligned with business activities. They are 100% tax-deductible and free from FBT considerations.

They often cover:

• Meals purchased during business trips.
• Refreshments at conferences or seminars lasting over 4 hours.
• Light meals for senior managers as part of their job responsibilities.
• Business promotional activities.
• Entertainment that's secondary at public functions or trade displays.
• Business promotional giveaways.
• Entertainment aimed for a reviewer's assessment.
• Discounted entertainment, provided the business typically offers entertainment at market rates.
• Entertainment experiences outside New Zealand.

For specific details and exclusions, refer to the IRD Website.

Half Deductible & Exempt from FBT:

If the entertainment expense has a personal or private component, it's typically 50% deductible and doesn't attract FBT. Even if the private aspect seems to be more or less than half, the 50% deduction applies.

Some instances are:

• Attending cultural or sports events.
• Business-associated use of a holiday home.
• Chartering a boat along with catering for guests.
• Social events provisions (e.g., parties) or amenities for top-tier staff.
• Business-related gifts of consumables enjoyed privately by recipients.
• Ancillary costs related to 50% deductible entertainment, such as hiring glasses or catering staff for an event.

For a comprehensive list and exclusions, check the IRD Website.

Fully Deductible but Subject to FBT:

When employees enjoy entertainment benefits because of their professional roles, these expenses are 100% deductible. However, they do incur FBT. Examples include performance rewards like dining vouchers or short getaways.

Being informed about these classifications can ensure you're making the most of your deductions while adhering to New Zealand's tax regulations. Always consult with a tax professional for specific guidance tailored to your business scenario.