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Paul's Post
15 December 2014

I've not failed. I've just found 10,000 ways that won't work." Thomas Edison 

Season's Greetings

Thank you to all our clients for your business during 2014. May 2015 be a better year for all of us.
In the meantime we hope that you will be able to take some time off and enjoy a well deserved break over the holiday season.

Our office will be closed from the end of 23rd December and re-open the 12th of January.

The Holidays are upon us but here are some things you need to know


Tax Questions and Answers

Topic: Gifts 

1.     Question

Are gifts by real estate agents to their clients 100% deductible? The gifts include alcohol, flowers and chocolates.

Answer

You can claim the cost of a food and wine gift basket given to a supplier to thank them for their service. The cost of the basket is fully deductible as long as it's not provided or consumed as outlined below.

Business entertainment rules:

If you provide your employees, clients and suppliers, or prospective clients and suppliers, with any of the following items you may only deduct 50% of the cost because they're counted as "entertainment expenditure".

Entertainment expenses that are 50% deductible are:

• corporate boxes, corporate marquees or tents, and similar exclusive areas (whether permanent or temporary) at sporting, cultural or other recreational activities that take place away from your business premises, this includes tickets or other rights of entry

• accommodation in a holiday home, time-share apartment or similar, but not accommodation incidental to business activities or employment duties

• pleasure-crafts, eg, a corporate yacht

• food and drink provided or consumed: 

– incidentally at any of the three types of entertainment above, eg, alcohol and food provided in a corporate box

– away from the taxpayer's business premises, eg, a business lunch at a restaurant 

– on the taxpayer's business premises at a party, reception, celebration meal, or other similar social function, eg, a Christmas party for all staff, held on the business premises (excluding everyday meals provided at a staff cafeteria)

– at any event or function, on or away from your business premises for the purpose of staff morale or goodwill, eg, Friday night "shout" at the pub

              – in an area of the business premises reserved for use at the time by senior staff and not open to other staff, eg, an executive dining room used to entertain clients.

 Basically any gift to a client which is in the nature of "entertainment", such as food and wine, will be subject to the entertainment regime and the deduction will be limited to 50%.

Gifts which are not "entertainment", eg, flowers, would be 100% deductible under the general permission.

Note: If you claim a 50% deduction for a business entertainment expense you will have to make a GST adjustment so you're only claiming 50% of the GST (if you've previously claimed 100%).

 

Gifts provided to employees

2.     Question

If you give your employees a gift, can you claim the full cost of the gift as an expense?

Answer

 Yes you can claim the cost as long as it doesn't fall within the business entertainment rules.  However you may have to pay FBT on it. You won't have to pay FBT on the gift if it's less than the general employee exemption and maximum employer exemption.

If you file your FBT returns quarterly there's a $300 exemption per employee per quarter if you provide free goods (gifts and prizes), or subsidised or discounted goods and services. However, if the value of the benefit for an employee goes over $300 for a quarter, you must pay FBT on the full value of the benefit.

Example

Two employees are given gifts of mystery weekends; one is valued at $250 and the other $350.

The $250 gift is not subject to FBT but the $350 gift is.

The maximum employer exemption you can claim is $22,500 per annum. If the total value of benefits for all employees goes over $22,500 for the current quarter and the three previous quarters, you must pay FBT on the total value of the benefits in the current quarter.

If you file annual or income year returns there's a yearly exemption of $1,200 for each employee, with the maximum employer exemption for all employees of $22,500 per year. If the period covered by the return is less or more than a normal income year 


 
Although every effort has been made to ensure the accuracy of this newsletter, the information is necessarily generalised. Clients are therefore requested to seek specific advice and not rely solely on the above, if they are interested in any matters mentioned.             

Paul Enoka Chartered Accountants Ltd
Level 1, 2 Pretoria Street , Lower Hutt
PO Box 31-348 Lower Hutt 5040 ,New Zealand
Phone (04) 939-7977