Understanding Entertainment Expenses in New Zealand

Business is not all work and no play.

In fact, certain entertainment costs—such as hosting events to strengthen business relationships, rewarding employees, or promoting your products and services—can be claimed as business expenses. If the expenditure helps you generate income, it is generally deductible when calculating your tax obligations.

The Basics

Entertainment expenses fall into two categories:

• Fully deductible

• 50% deductible

The 50% rule applies when there is a private or social element involved, such as staff parties, gifts of food and drink, or entertainment at sporting events. For example, if you host a Christmas party for your team or send a bottle of wine to a client, only half of the cost can be claimed for tax purposes.

Examples of 50% deductible expenses include

• Food and beverages at social events (e.g., Christmas parties, Friday drinks)

• Gifts of food and drink that are consumed privately (such as a box of chocolates for a client)

• Associated costs for entertainment, such as hiring wait staff or glassware for an event.

Fully deductible expenses include

• Meals while travelling for business (unless it involves a celebration or a business contact, in which case it’s 50%)

• Food and drink provided at conferences or training sessions lasting at least four hours (unless the event is primarily for entertainment)

• Light meals for senior managers as part of their duties (e.g., sandwiches at a board meeting)

• Entertainment incurred outside New Zealand.

If you provide staff rewards such as restaurant vouchers or weekend getaways, these are generally 100% deductible. However, fringe benefit tax (FBT) may apply.

Exception: Light Refreshments

“Light refreshments” are excluded from the 50% limitation and remain fully deductible. While not explicitly defined in tax legislation, commentary and related provisions suggest this includes:

• Non-alcoholic beverages such as tea, coffee, and water

• Simple snack foods like biscuits and fruit

These items are typically provided to staff during the normal working day and are not considered to have the significant private benefit that the entertainment rules aim to restrict.

Key points to remember

• The 50% rule applies only to gifts of food and drink; other types of gifts may be fully deductible.

• Always retain invoices and receipts to substantiate your claims.

Tax Tips for Businesses

• Plan ahead: Before hosting events or sending gifts, consider whether the expense will fall under the 50% rule or be fully deductible.

• Check FBT obligations: Rewards and perks for staff may trigger fringe benefit tax, even if they are fully deductible.

• Stay compliant: Review your entertainment expenses to ensure your claims align with current tax rules.

• Keep documentation: Accurate invoices, receipts, and notes on the purpose of the expense are essential for tax audit protection.

By understanding these rules and planning accordingly, you can enjoy the benefits of entertaining clients and staff while staying on top of your tax obligations.