Claiming On Entertainment Expenses

by
Amit Kumar
Claiming On Entertainment Expenses

One of the most common questions we get asked is "what can I claim for entertainment expenses?"

As entertainment expenditure can give significant private benefits, there are limitations on deductions when making claims for tax purposes. These limitations restrict deductibility by 50% on a wide range of entertainment expenditure. But don’t worry, we’ve broken down the restrictions and exceptions to make it easier for you.


Restrictions

Corporate Boxes

Corporate boxes, marquees, tents, and similar exclusive areas at sporting, cultural, or other recreational events/activities occurring off the business premises of the taxpayer. This includes expenditure on tickets or rights of entry to exclusive areas.

Holiday Accommodation 

Accommodation in a holiday home, time-share apartment, or similar leisure venue. This discludes accommodation related to business activities or employment duties.

Pleasure Craft 

Yachts or other pleasure crafts.

Food & Beverage

Food or beverages provided as part of entertainment off the business premises, or on the business premises at a party, in a boardroom, executive dining area, or similar exclusive area.


Restrictions also apply to the extent that allowances, reimbursements, and expenses are paid to employees for expenditure on specific types of entertainment. This allowance or reimbursement is exempt from tax.

Specified types of entertainment provided to employees will, in certain circumstances, be subject to fringe benefit tax rather than the 50% non-deductibility rule. 

Exceptions

All expenditure below will be fully deductible providing it satisfies the deductibility criteria.

Food & Beverage

Food or beverages consumed at a conference lasting at least 4 hours.

A reasonable amount of food or beverages consumed by an employee to the extent that the employer pays an allowance or reimbursement for overtime for the food cost.

A reasonable amount of food or beverages provided as a morning or afternoon tea in a boardroom, executive dining room, or similar exclusive area. This may also be provided at conferences unless the event is for the purpose of entertainment.

A light meal provided by an employer to employees in a boardroom, executive dining room, or similar exclusive area where the meal is enjoyed as part of the employee’s business or employment duties.

Food or beverages consumed while travelling in the course of business activities or employment duties, unless: 

  • The travel is for the purpose of enjoying entertainment.
  • It is consumed at a function where existing or potential business contacts are guests.
  • It is consumed at a party, reception, celebration meal, or similar social function.

Advertising & Promotional Activity

Entertainment which is sponsored principally to advertise or promote a business, goods, or services to the public (provided existing business contacts, employees, or associates are not given any preference).

Entertainment that is an incidental part of a function open to the public, or a trade display principally held to advertise or promote a business, goods, or services.

Entertainment enjoyed or consumed outside New Zealand.

Entertainment provided at market value in the ordinary course of business.

Entertainment provided to members of the public for charitable purposes.


Fringe Benefit Tax or Entertainment Tax?

Entertainment that is a fringe benefit, to which the fringe benefit tax applies, is excluded from the entertainment tax regime. Entertainment provided to employees or their associates that’s subject to the 50% non-deductibility rule, will instead constitute a fringe benefit subject to FBT where:

  • the employee may consume or enjoy the benefit at the employee’s discretion.
  • the entertainment is consumed or enjoyed outside New Zealand.
  • the benefit is not consumed or enjoyed in the normal course of employment duties.


Goods and Services tax

The GST adjustment of three-twenty-third of the non-deductible portion of entertainment expenditure is made annually in the GST return for the period the due date for filing the annual income tax return of the business falls. The amount of this GST adjustment is not deductible for income tax purposes.