Business is not all work and no play. The “play” is part of running a business – keeping your team happy, building your business contacts and promoting your business. But Entertainment is not that straight forward when it comes to tax deductibility.
There are different categories of entertainment – and different tax rules apply to each category.
If the expense is of a private nature, then this is not an allowable tax deduction.
Most of your business-related entertainment expenses will be 50% tax deductible. However, there are some that are 100%.
How do you distinguish if an expense is personal, or business related? This is defined in the IRD Entertainment Guide (IR268) as:
“An entertainment expense is business-related if you spend the money to help your business earn income”
For business-related expenses, let us explore some examples of the various categories:
- Food and Drink at work (Light Refreshments) – 100% deductible
- Food and Drink at work (Social event) – 50% deductible
- Offsite Food and drink – 50% deductible
- Gifts of Food and Drink – 50% deductible (e.g. buy gifts of a book voucher, candles etc.)
- Meals whilst away on a business trip – 100% deductible (there are exceptions to this rule, so make sure you refer to the Guide.
- Food and Drink at a Conference – 100% deductible.
- Corporate Boxes / Marquees / Tents etc. at an event (including tickets, food and drinks), away from your business premises are 50% tax deductible.
- Holiday Accommodation for a holiday home (including food and drinks) – 50% deductible. However, if the accommodation is secondary to the business activities or employment duties, then this is 100% deductible.
- Recreational Boats / Yachts / Launches (including food and drink whilst onboard)– 50% deductible.
Do ensure that you refer to the Entertainment Guide for more details on your specific circumstances.
Just as an aside, be careful that what you are classifying as an entertainment expense for your employees does not have FBT implications. For example, a motor vehicle provided for private use, discounted, or subsidised goods or services.
