The Christmas Guide: Tax Implications for Employee & Client Gifts

Gifts

Depending on the gift, you may be able to claim 100 per cent of the cost of gifts that you give to your employees and/or clients over the holidays. Food baskets, event tickets, and other, similar presents are usually able to be claimed for income tax purposes.

However, there is a value threshold over which you will need to start paying tax. Currently, this is $300 per quarter for each employee, or $22,500 in total across all employees for unclassified benefits over the course of a year.

This can create a problem when it comes to gift time, as you’d be surprised what can be considered under an “unclassified benefit”: even staff discounts come under this heading. If there has been a staff member who has been taking advantage of their discount more than others, they might push you just over their individual limit for benefits and require you to pay fringe benefit tax.

If there’s an employee that you are buying something particularly significant for, keep in mind that the price tag might be a little higher than you expected after the tax!

One last thing to note: gifts of cash are considered additional remuneration and are taxed as such.

Parties and events

If you are hiring a venue for a Christmas party, you can normally claim 50 per cent of the cost back, alongside food and drink costs and related entertainment. Do note that this depends on hosting the Christmas event off-premises, rather than at the office.

Other costs you might claim 50 per cent of include:

• Holiday home accommodation
• Use of a corporate yacht
• Food at a restaurant

One last thing to note: fines are, unsurprisingly, not able to be claimed against tax, so ensure that your employees or clients don’t get too raucous and end up with a ticket!

Do I need to pay FBT on this other thing?

Fringe benefit tax can be a very complicated subject, but there is a good rule of thumb to follow: if you are giving your employee something that isn’t money, and they can choose when to enjoy that thing, it will probably require FBT to be paid.

For example, if you give an employee a bottle of extremely expensive wine (in order to get over the $300 threshold), you would need to pay FBT on that, because they can take that home and open it whenever.

On the other hand, if you gave them a glass of that same wine, which they have to enjoy then and there, you probably wouldn’t need to pay FBT.

Fringe benefit tax can get complicated if you’re giving out plenty of gifts or gifts of a high value. If you’d rather avoid getting slapped with a fine from the IRD due to a simple mistake over the holidays, it’s better to hand it over to the experts here at Andersen.