With the silly season just around the corner, it's a good time to refresh on what entertainment costs are deductible for your business. If an entertainment cost is completely related to your business it can be 100% deductible. However, being "completely related" is not always easy to determine. Some entertainment costs do include a private element, in which case, this would make them only 50% deductible. So how do you decide?
The IRD have listed some examples of 100% and 50% entertainment costs on their website which I have popped below. This is a great starting point to see if your entertainment costs match one of the examples. However, if you are ever unsure about an entertainment cost, you are welcome to get in contact to discuss further. Sometimes it's determined on a case by case basis, and subject to the industry you are in.
100% deductible entertainment (per the IRD website):
- meals an employee buys while travelling on business (unless it is with an existing or potential business contact, or the meal is a celebration, reception or similar event – in these situations it would only be 50% deductible)
- food and drink provided at a conference, education course or similar event that lasts at least 4 hours (unless the conference is mainly for entertainment – in which case it would only be 50% deductible)
- light meals provided in a dining room for senior managers and consumed as part of their duties (such as sandwiches provided during a board meeting)
- entertainment that promotes your business (as long as the public has the same access to this as your employees, business contacts or people associated with the business – if the public has less access it would only be 50% deductible)
- entertainment that is only a secondary part of either a function that is open to the public, or any trade display (for example, serving coffee at your business’s trade display)
- freebies promoting your business (such as branded stationery, but excluding any given to employees or people associated with you – these are only 50% deductible)
- entertainment provided to someone who’s going to review it for publication (such as giving a free meal to food critics)
- entertainment provided at a discount, if your business regularly provides entertainment at market prices (for example, offering half-price meals at your restaurant)
- entertainment enjoyed outside of New Zealand.
50% deductible entertainment (per the IRD website)
- entertainment at sports or cultural events (for example, a corporate box)
- business use of a holiday home
- hiring a boat, and providing food and drink to people on it
- food and drink you provide for social events (such as parties) or in an area set aside for senior employees (though there is an exception for 'light meals' consumed as part of the manager’s duties, which are 100% deductible)
- gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them (for example, if you give a bottle of wine to each customer who buys a car off you)
- 'supporting expenses' for other entertainment that’s 50% deductible, such as hire of wine glasses and wait staff for a party