Skip links

Christmas Party Tax: What You Can Claim

Published on: Published in: Insights

Christmas Party Tax: What You Can Claim

Christmas party tax catches out more Kiwi businesses than you would think. The rules are simple once you know them, but the details matter. Here is what you can claim, what you can’t, and where the traps sit before the silly season starts.

Christmas Party Tax: The 50% Rule

Food, drink and venue costs for a staff party fall under the entertainment rules. That means you can deduct only 50% of the cost. IRD treats a party at your own premises the same as one at a restaurant. Costs that support the party, such as waitstaff and glass hire, are also limited to 50%.

GST follows the deductible share. At MBP Advisory, we apportion GST as we go, so you claim it on only the 50% you can deduct. Some businesses claim it all and adjust at year end. Either way, you claim GST only on half the cost.

FBT does not usually apply to a team party, because the entertainment rules take over. The exception is when employees can choose when and where to enjoy the benefit. That is the heart of Christmas party tax. Transport follows the same logic. A bus you book at fixed times falls under the entertainment rules. However, reimbursing a staff member’s taxi is taxable cash under PAYE (or liable to FBT).

Staff Gifts and FBT

Gifts are a different story. Cash and bonuses go through PAYE. Most other non-cash gifts count as a fringe benefit. So does a gift card or voucher staff can use any time. Prepaid cards such as Prezzy cards can be trickier, because they can technically be treated under PAYE (are they as good as cash?). Ask your accountant before you buy them. A team lunch is entertainment, but a restaurant voucher is not.

However, small gifts can stay free of FBT. The limit is $300 per employee a quarter, and $22,500 a year across all staff. Go over either limit and FBT applies to the whole amount. The value is GST-inclusive, so count it that way. Other benefits you give count towards the same limits.

Client Gifts

Client gifts are simpler. A gift with no food or drink, such as flowers or a book, is fully deductible. Wine, hampers and restaurant vouchers count as entertainment, so only 50% is deductible. FBT does not usually apply to gifts for clients.

A Quick Checklist

  • Keep receipts and note who attended.
  • Record staff gifts separately from client gifts.
  • Track gifts per employee against the $300 quarterly limit.
  • Send cash bonuses through payroll.
  • Ask your accountant before the party, not after.

Not sure where your Christmas spend lands? Get in touch with the team at MBP Advisory, and we will sort it out before year end.

This article is general information only and is not tax advice tailored to your specific situation. Please reach out for specific advice and support.