If you provide entertainment for your team, clients, or other business contacts, some of these expenses may be tax deductible. Claiming the cost of entertainment as a business expense can help build relationships, maintain employee morale, or promote your goods or services. Here’s what you need to know about entertainment expenses, income tax, and GST treatment.
Understanding Entertainment vs. Meal Expenses
It’s important to differentiate between expenses incurred for entertainment purposes and meals that are not considered entertainment. The tax rules for entertainment expenses differ from those for meal expenses. Additionally, the treatment of meal expenses depends on your business structure—whether you trade as a company, are self-employed, or operate as a partnership.
Fully Deductible Expenses
Certain entertainment-related costs are fully tax deductible. These include:
- Meals While Travelling on Business
- The cost of a meal consumed while travelling for business is fully deductible if no business contacts are present. For self-employed individuals, this applies only when working in a remote location or during unusual hours.
- Conferences
- Food and drink costs at conferences or business courses lasting four hours or more are fully deductible.
- Meal Allowances
- Tax-free meal allowances paid to employees for overtime work are fully deductible. For self-employed individuals, meal costs are fully deductible only under the same conditions as meals while travelling.
- Executive Dining Facilities
- Light meals provided to employees in areas reserved for senior management during their normal duties are fully deductible.
- Morning and Afternoon Teas
- Morning and afternoon teas provided onsite (outside of reserved areas for senior staff or social events) are fully deductible.
- Promotions Open to the Public and Trade Displays
- Entertainment provided during public promotions or trade displays to advertise your business is fully deductible. For example, offering drinks and nibbles at a trade show.
- Offshore Entertainment
- Entertainment expenses incurred outside New Zealand are fully deductible but may have Fringe Benefit Tax (FBT) implications.
- Monetary Sponsorship
- Sponsorship costs for entertainment that promote or advertise your business to the public are fully deductible.
- Entertainment as Part of Your Business
- Entertainment provided as a core part of your business is fully deductible. For example, a restaurant providing meals to patrons.
- Samples
- Costs of samples for advertising or promotional purposes are fully deductible.
- Charitable Entertainment
- Entertainment provided to the public for charitable purposes is fully deductible. For example, donating food to a Christmas party at a children’s hospital.
- Reviewers
- Costs of entertainment provided to reviewers for promotional purposes are fully deductible. For instance, offering a meal to a reviewer writing about your restaurant.
50% Deductible Entertainment Expenses
Some entertainment expenses are only 50% deductible. These include:
- Costs associated with corporate boxes, marquees, or pleasure craft.
- Accommodation in holiday homes or time-share apartments.
- Food and beverages consumed:
- In corporate boxes, marquees, or pleasure craft.
- During social events held on or off business premises (e.g., Friday drinks or a Christmas lunch).
- At offsite restaurants for client or employee gatherings (e.g., business dinners or lunch meetings).
Examples:
- Taking clients out for dinner.
- Hosting Friday drinks at the office.
- Providing employees with food hampers or vouchers redeemable for food and drink items.
Final Notes
Understanding the distinction between fully deductible and partially deductible entertainment expenses is crucial for accurate tax reporting. When in doubt, consult your accountant or tax advisor to ensure compliance with Inland Revenue’s guidelines.