Office parties on the taxpayer
The taxpayer helps companies fund Christmas treats such as parties for staff, and presents to favoured clients.
But this year the taxpayer has become less generous when it comes to chipping in for some kinds of gifts.
Andrew Dickeson from Staples Rodway said ‘‘a change of heart’’ from the Inland Revenue Department on which gifts are fully tax deductible means some common gifts might fall off companies’ Christmas present lists.
Dickeson said an operational statement released by Inland Revenue in August claimed gifts of food and drink would only be allowed a 50 per cent deduction, meaning only 50 cents in every dollar spent on them could be considered a business expense.
Gifts not including food and drink remained 100 per cent deductible.
‘‘This means the de rigueur bottle of wine or gourmet gift hamper to corporate clients could be on the chopping block. Adopting the IRD’S current approach could lead to some bizarre outcomes.
‘‘For example, providing a Christmas hamper with things like toiletries, scented candles and homewares is 100 per cent deductible, but a hamper containing wine and cheese is not.’’
Even giving a voucher for a restaurant meal or tickets to a show could be interpreted as providing ‘‘entertainment provided off-premises’’ under the Income Tax Act, meaning it is only 50 per cent, not 100 per cent, tax deductible.
As a result, Dickeson said: ‘‘We are advising clients to avoid gifts of food and drink and opt for something else this year. While this might mean fewer festive season hangovers, it seems the headaches will linger until the situation is clarified by an amendment to the legislation.’’
Christmas gifting by companies isn’t always on a small scale. A larger company might send out several hundred hampers at Christmas, Dickeson said.
Tax expert Stephen Richards from Crowe Horwath said many businesses throw Christmas parties for staff, and 50 per cent of the costs could be counted as an expense that reduces their taxable income.
‘‘Although businesses are able to claim a deduction for expenditure on costs associated with staff functions, certain expenditure is considered to provide a private benefit and the deduction is limited to 50 per cent of the amount that would otherwise be allowed as a deduction,’’ he said.
Entertainment expenditure included the costs of hiring crockery, glassware, and utensils, waiting staff, music or other entertainment, such as fireworks or hiring a Father Christmas to hand out presents, Richards said.
Businesses had to take care, though, as some party-related spending might fall into other spending brackets.
If a business chose to pay for staff taxi fares home, the cost could be treated as an employee benefit, he said.