Entertainment is an important part of business. It may be building up business relationships with existing or potential clients or keeping staff happy and if it’s related to helping you earn income then it may be either partly or fully deductible.
The key point to note here is that there has to be a link between the money spent and helping your business earn income. Sometimes it can be difficult to work out whether this is claimable or not. Sometimes there is a private element to entertainment of clients or staff, and as such only 50% is deductible (even if you think that the portion is higher), while other times it may be fully deductible, but may be subject to FBT. The critical point is that you need to keep a copy of the invoice or receipt recording who you entertained and for what reason as that will make it much easier to determine how much you can claim. There are also different rules if the entertainment is out of town or overseas.
A general rule of thumb is that if you, your clients, employees or anyone associated with your business has a greater opportunity to enjoy the entertainment than the general public, then you can only claim 50% of the costs.
Below is a list of examples of some expenses and how they could be treated:
- Taking a client out for coffee or lunch
- Friday night drinks at work or at the local Pub
- Entertaining clients on a launch/corporate box
- Staff Christmas parties (either at the office or off business premises)
- Taking a client out to dinner
- A weekend away (in NZ) for the staff (includes food and drink)
- Morning tea (coffee and biscuits for staff)
- Sponsorship of a local team (provided it relates to your business)
- Dinner for staff while working out of town (unless there is a business contact in which case it is only 50%)
- A weekend away (in Fiji) for the staff
- Buying yourself lunch
- Taking your family out for dinner (even if it is to thank them for being patient while you worked such long hours)
If employees can enjoy the entertainment benefit at their discretion or outside their employment duties then there may be FBT consequences. This would include items such as golf club subscriptions or gym memberships.
If you are unsure about an item, make sure you have the receipt and contact us and we can advise further.