EXPENSES • 12 DECEMBER • 4 MIN READ

A guide to entertainment expenses

A man and a woman talking about their business' enterntainment expenses at a cafe

SECTIONS

What are entertainment expenses?

What can you claim?

GST on entertainment expenses

FBT on entertainment expenses

Record keeping

Who are Beany?

As a business owner, you know that entertainment expenses are an important part of your overall financial picture. Not only do they help keep your staff happy and increase their morale, but they can also provide tax advantages to your business. But navigating the world of entertainment expenses can be tricky - what kind of expenses are tax-deductible, and which ones aren’t?

This guide will provide you with the information you need for entertainment expenses:

What are entertainment expenses?
What can you claim?
GST implications
FBT (Fringe Benefit Tax) implications
Record keeping

What are entertainment expenses?

Entertainment can mean food and drinks, social events, corporate boxes, trips, accommodations, and more. Entertainment expenses are what you’ve paid for your employee’s or customers’ entertainment.

There are specific rules applied to different ‘categories’ of entertainment expenses. For example, some expenses are fully deductible, no FBT implications, but some are not. There are situations where entertainment expenses are 100% deductible but still liable for FBT.

What can you claim?

The general rule about expenses is that you can claim anything that helps you to generate business income. If it’s purely personal such as taking mum out to dinner, you can’t claim it. But there are some curly bits in the entertainment area as there is often a blurred line between personal and business expenses.

Please note this is not an exhaustive list of entertainment expenses, head to IRD’s website to learn more.

50% claimable

A corporate box
Cost of renting a boat for entertaining customers or employees
Gifts of food or drink to clients
Food and drink at your office for a social event (e.g., a party or a function)
Off-site food and drink such as taking a client, a supplier, or employees to lunch
Annual company trip and accommodation

It’s important to note if there are personal elements relating to the entertainment expenses, the cost is likely to be 50% deductible. A good example is the cost of a Christmas party during the festive season. This is because you’re also enjoying it (there are personal elements!)

100% claimable

Food and drink you provided at a conference for others
Meals an employee buys while traveling on business
Morning and afternoon tea for your team
Freebies to promote your services (such as branded stationery, but excluding any given to employees or people associated with you)

Gifts to employees and clients can be tricky, we have a blog explaining this topic in detail. In summary, gifting needs to meet the following requirements to be 100% tax deductible:

As long as you don’t provide any single employee with a gift of more than $300* each quarter (March, June, September, December), the costs are 100% deductible. However, if the gift is food and/or drink, then only 50% can be claimed.
If you’re gifting vouchers, GST can’t be claimed on the purchase price. Be aware that the 50% rule applies here too - if the vouchers are related to food and/or drink, you can only claim 50% as a business expense.
For gifts to clients, the rules are exactly the same as above, except there’s no set dollar value.

* This is set by the IRD. Anything more than $300 per quarter is captured by the FBT regime. You really don’t want to go there.

GST on entertainment expenses

GST can’t be claimed on non-deductible entertainment expenses. In order to claim GST for the period, you can add up the GST portion on claimable entertainment expenses with any GST you’ve paid on other expenses during the same period.

For example, you’ve spent a total of $150 on books as gifts for your employees during April, May, and June. You’re eligible to claim the GST portion ($150*0.15 = $22.5) of your entertainment expenses at 100%. This is because:

The gifts are not related to food and/or drinks
You didn’t exceed the $300 per quarter threshold set by the IRD

As a result, you can include this $22.5 in your GST return and claim it back.

FBT on entertainment expenses

FBT on entertainment expenses is not very common, but it could happen. Entertainment expenses could be 100% deductible and liable for FBT if they are received by employees because of the work they do. For example, rewards for good performance, such as a restaurant gift voucher or weekend away.

Record keeping

You need to keep records such as invoices or receipts in order to make claims. As required by the IRD, you also need to keep records of the following information:

The date entertainment expenses were incurred
The names of the people entertained
The business they represent
The positions they hold
The reasons for the entertainment

Keeping these records will help you to calculate the entertainment expenses you’re eligible to claim. It also helps you to identify which entertainment expenses are 100% deductible and which are only 50% deductible.

Who are Beany?

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would.

We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.