Business Christmas Gifts in NZ: The Tax Implications

As the festive season approaches, many New Zealand businesses embrace the spirit of giving—offering gifts to clients, suppliers, and employees to show appreciation and strengthen relationships. While generosity is commendable, it’s essential to understand the tax implications of gift giving, especially around Christmas when such gestures are more frequent. The rules apply year-round, but the holiday season often brings them into sharper focus.

Why Gift Giving Matters for Tax

Inland Revenue (IRD) treats business gifts as part of your operating expenses, but not all gifts are treated equally. Depending on the nature of the gift and the recipient, deductibility, GST treatment, and fringe benefit tax (FBT) may apply. Misunderstanding these rules can lead to unexpected tax liabilities or missed deductions.

1. Gifts to Clients: Deductibility Depends on the Gift Type

When giving gifts to clients, the key question is whether the expense is fully deductible, partially deductible (usually 50%), or not deductible at all.

Fully Deductible Gifts

These are gifts that do not include food, drink, or entertainment. Examples include:

• Branded merchandise (e.g., pens, umbrellas)
• Books
• Flowers (non-edible)
• Vouchers (non-convertible to cash)

These gifts are 100% deductible as business expenses, and you can claim the full GST input credit.

Partially Deductible Gifts (50%)

If the gift includes food, drink, or entertainment, only 50% of the cost is deductible, and you must adjust the GST claim accordingly. Examples include:

• Bottles of wine or spirits
• Gift baskets containing chocolates, cheese, or other edible items
• Restaurant meals or catered events

If a gift basket contains both food and non-food items, you must apportion the expense—claiming 50% for the food/drink portion and 100% for the rest.

Gifts to Employees: Fringe Benefit Tax (FBT) Applies

Gifts to employees are generally considered fringe benefits, and may be subject to FBT. The treatment depends on the type and value of the gift.

Non-Cash, Non-Convertible Gifts

These include physical items like:

• Movie tickets
• Gift hampers
• Branded clothing
• Bottles of wine

If the total value of such gifts is under $300 per employee per quarter, and the total across the business is under $22,500 per year, FBT does not apply. This is known as the de minimis exemption.

Cash or Convertible Gifts

If the gift is cash or convertible to cash (e.g., vouchers redeemable for cash), it is treated as income and subject to PAYE rather than FBT. These must be included in the employee’s gross income and taxed accordingly.

Meals and Entertainment: A Common Holiday Trap

Christmas lunches, dinners, or parties are a popular way to celebrate with staff or clients. However, these are considered entertainment expenses, and only 50% of the cost is deductible.

This includes:

• Restaurant meals
• Catering at the office
• Tickets to events or shows

You must also adjust your GST claim to reflect the 50% deductibility. If the event is held off-site or includes external guests, the same rules apply.

Flowers, Alcohol, and Mixed Gifts: Apportioning Is Key

Many businesses give mixed gifts—for example, a hamper with wine, chocolates, and branded merchandise. In such cases, you must:

• Identify the food/drink components (50% deductible)
• Separate the non-food items (100% deductible)
• Claim GST only on the deductible portion

For example, a $200 gift basket with $80 worth of wine and $120 of branded items would allow:

• $40 deduction for wine (50% of $80)
• $120 deduction for branded items
• GST claim only on the $160 deductible portion

Other Considerations:

Record Keeping and Compliance

To stay compliant and maximise deductions:

• Keep detailed invoices showing item breakdowns
• Track employee gifts to monitor FBT thresholds
• Separate entertainment from other expenses in your accounting system
• Consult your accountant before making large or unusual gifts

Supplier Rewards and Loyalty Gifts

Some businesses receive gifts or rewards from suppliers (e.g., “spend $X and get a bottle of wine”). These are considered taxable income to the recipient business. The value of the gift must be included in income based on its market value.

If the gift is used in the business (e.g., a coffee machine), it becomes a business asset, but depreciation may not be allowed under current IRD rules.

GST Adjustments: Don’t Forget This Step

For any expense that is only 50% deductible, you must also adjust your GST claim. This means:

• Claim GST only on the deductible portion
• Keep records that clearly show the split

Failure to do so can result in IRD penalties or reassessments.

Christmas Is a Reminder, Not an Exception

While this blog focuses on Christmas, the rules apply all year round. Gifts given for birthdays, anniversaries, or business milestones are subject to the same tax treatment. However, the volume of gifts spikes in December, making it a good time to review your policies and ensure compliance.

Summary: What You Can Deduct and What You Can’t