Common Tax Questions to Ask During the Holidays for Your Business

Introduction

The holiday season is here, and businesses are getting into the festive spirit. While you’re preparing for Christmas parties, client gifts, and end-of-year bonuses, don’t forget that certain expenses might have tax implications. Whether you're celebrating with your team or treating your clients, it’s important to know what’s deductible and what could affect your tax obligations. This blog post breaks down some tricky Christmas tax questions that businesses in New Zealand might face, and how to approach them.

1. Is Our Christmas Work Party Tax Deductible?

Christmas parties are a great way to show appreciation for your staff, but are the expenses deductible? According to Inland Revenue, a work party is considered a fringe benefit. If the cost per person exceeds $300 (including GST), it may be subject to Fringe Benefit Tax (FBT). However, if the party is on business premises and meets certain criteria, you could reduce the cost burden. To be safe, always check your total spend and keep records of the event.

2. Does It Matter Whether the Party is Held on Business Premises?

Yes, the location of your Christmas event matters. If the party is held on business premises, and all employees are invited, it may be easier to justify as a deductible expense. However, if the event is held off-site or involves entertainment (like a function at a restaurant or venue), it could trigger FBT if costs go beyond the $300 per person threshold.

3. What About Hiring Items for a Christmas Party?

If you’re renting items for the party, such as tables, chairs, or audiovisual equipment, these can be considered as business expenses, provided they are used for the work function and not for personal enjoyment. Keep your receipts and make sure to separate any personal use expenses, as they are not deductible.

4. If I Take My Clients or Staff Out for Christmas Lunch, Is It Tax Deductible?

Client lunches can generally be claimed as a business expense, but there are limits. If the primary purpose is business-related, such as discussing future work or strengthening a professional relationship, then the lunch could be deductible. However, if the lunch is purely social, it may not be. For staff, meals during the Christmas season may be seen as a staff benefit, and if you exceed the $300 per person rule, FBT could apply.

5. Are My Gifts to Staff and Clients Tax Deductible?

Gifts are a thoughtful gesture, but they might have tax implications. Gifts to staff are generally considered taxable and subject to FBT if they exceed $300 in total per employee per year. Client gifts, however, can often be deductible if they are related to business purposes and are not extravagant. Always ensure that the gifts are aligned with your business goals to maximise their deductibility.

6. My Staff Can’t Use Public Transport Due to Public Holiday Schedules – Is a Transport Allowance Tax Deductible?

Transport allowances paid to staff who can’t access public transport due to holiday schedules may be deductible, but you need to ensure the payment is for legitimate business purposes. For example, if you’re covering transport costs for work-related travel, it might be deductible. However, you’ll need to consider whether the allowance is seen as a fringe benefit. If it is, FBT may apply.

7. Will I Need to Deduct PAYE from the Allowances Paid?

Yes, if you’re paying employees allowances (such as for transport, meals, or accommodation), you will need to deduct PAYE (Pay As You Earn) tax from those payments. Keep in mind that these allowances may also be subject to other taxes depending on their nature, and some may be considered fringe benefits.

8. What Is the Tax Treatment of Cash Bonuses for Staff?

Cash bonuses are taxable and should be treated as part of your employees’ wages. PAYE must be deducted from the bonus, and it should be included in your staff member’s income for the year. While bonuses can be a great way to reward hard work, they do come with tax responsibilities, so be prepared to manage the appropriate deductions.

Tips for Navigating Christmas Taxation

• Stay Organised: Keep detailed records of any expenses related to Christmas functions, gifts, and bonuses to ensure you can properly justify your claims.
• Know the Limits: Familiarise yourself with the $300 per person rule for FBT to avoid any unexpected tax bills.
• Consult Your Accountant: If you’re unsure about any deductions or tax implications, it’s always best to consult with a tax professional. They can guide you on the correct treatment of your Christmas-related expenses.

Conclusion

By staying informed about these key tax rules, you can avoid the holiday stress of unexpected tax bills and ensure that your business continues to run smoothly into the new year. So go ahead, enjoy the holiday season, but always keep your tax responsibilities in check.