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Entertaining Expenses Made Easy

Nick Roberts

The tax treatment of entertainment expenses is a tricky area and is an easy source of additional revenue in interest and penalties for the IRD, as they consider it to be a common area where taxpayers deliberately attempt to conceal private expenditure as business.

There are basically two types of entertainment expenses from the tax angle:

 

  1. Private expenses. Not surprisingly not deductible. Examples include lunches with friends or your business partners, or where the business aspect is incidental. 
  2. Expenses which are 50% or 100% deductible. To be deductible, the expenses must be incurred primarily in connection with business transactions entertaining a business contact e.g. customers, clients, suppliers, or your financiers.

So, if it is not private, is it 50% or 100% deductible? One way that some use is that if the event giving rise to the expenditure is enjoyable then it's only 50% deductible! However, that is not a reliable method and the more common expenses which are 100% deductible are:

 

  • Meals whilst travelling on business
  • Food and drink on courses and conferences
  • Meal allowances for employees working overtime
  • Dining/lunches for senior staff and morning or afternoon teas for all
  • Off-shore entertainment
  • Monetary sponsorship
  • Expenditure liable to FBT

I find that people often complain about their tax but then almost voluntarily pay more through lack of planning, failing to seek advice or just trying to ignore it! If you want to keep more of your profits then more positive action is required!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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