Entertainment expenditure – gifts of food and drink
The entertainment expenditure rules in subpart DD of the Income Tax Act 2007 limit tax deductions for certain types of expenditure to half the deduction normally available.
One type of expenditure covered (with exemptions) is expenditure on providing food and drink off business premises.
This means that spending on things like chocolates or a bottle of wine to give as gifts to customers, clients or suppliers for example, will not be fully deductible.
If the items are purchased as a gift basket or together with other items that aren’t food and drink, the expense must be apportioned between fully deductible and not fully deductible.
Fringe benefit tax and work-related vehicles
Fringe benefit tax (FBT) doesn’t apply on days where a motor vehicle qualifies to be a work-related vehicle. To qualify, all of the following conditions must be met:
• the principal design of the vehicle isn’t for carrying passengers
• the exterior of the vehicle permanently and prominently displays business signage
• employees are notified in writing that the vehicle is available only for travel between home and work and travel incidental to business, eg, passing by the bank on your way home from work
• regular checks are carried out and recorded to make sure employees are following vehicle restrictions.
FBT is payable for any day the motor vehicle doesn’t meet the four conditions. Our Fringe benefit tax guide (IR409) explains the conditions in more detail.
Note: Sedans and station wagons don’t qualify as work-related vehicles, unless the necessary alterations are made to convert them.
Fringe benefit tax liability
Some examples where FBT is payable on work-related vehicles (eg, utes, double cab utes or vans) is a vehicle:
• which doesn’t have permanent sign-writing
• made available to use privately over the weekend
• that has no restrictions in place about using it privately
• where the employer has notified the employee(s) in writing of any private use restrictions, but doesn’t make regular checks on restriction compliance
• where regular checks on restriction compliance are undertaken by the employer and private use that has taken place is identified.
Find out more about motor vehicles and fringe benefit tax
If you have any questions about FBT on motor vehicles send them to FBTenquiries@ird.govt.nz. We’ll respond to your question within 10 working days.
If you think your client may have a FBT liability in one of the situations above, or a general FBT liability, you can make a voluntary disclosure by sending it to FBTenquiries@ird.govt.nz.
Info collected from: Agents Answers August 2016