Wondering about the New Zealand tax deductibility for buying gifts for clients?
At this time of year we often get questions from Australian business owners with interests in New Zealand about the deductibility of traditional Christmas staples like chocolates and wine.
Until recently, these types of gifts tended to be fully tax deductible.
In fact, we have on file statements from Inland Revenue dating back to December 2011 where they stated, ““…you can generally claim 100% of the costs of gifts, such as food, wine or event tickets, as an expense”.
That seemed very clear to us.
However, we noticed an IRD article in August which said something very different. It stated that entertainment expenditure in relation to the cost of giving gifts of food and wine would not be fully deductible. It went on to suggest that these types of gifts would be subject to the entertainment tax regime which reduces the deductibility to just 50%.
We sought clarification and the Commissioner has confirmed that she will be standing by the more recent Inland Revenue statement of August 2016. In order to clarify any confusion, she said that statement would apply from 1 September 2016.
This means that the rules have changed from those in place last Christmas.
If you plan to purchase a bottle of Australian red, or chocolates, and pass them on as a thank you from your New Zealand business to clients or suppliers, the deductibility will be limited to 50%.
If you purchase a gift basket which includes items other than food or drink you will need to apportion the total cost between the non-food or drink items that are fully deductible and the non-fully deductible items. Or it might be a lot easier to simply claim one half.
A similar adjustment will need to be made on your GST return.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.