General information
Expenses must be incurred for business purposes to enable them to be deducted from a business’ income. Private expenditure, or expenditure incurred where the business aspect is incidental, is not deductible.
Expenses that are 50% deductible
There are four categories of expenses that are 50% deductible, generally:
- Corporate boxes, corporate marquees or tents and similar exclusive areas (including the costs of tickets or other rights of entry)
- Holiday accommodation
- Pleasure-craft (such as a corporate yacht)
- Food and drink
Expenses that are fully deductible
The following types of expenses are generally fully deductible:
- Meals when travelling on business, unless entertaining an existing or potential business contact as a guest
- Food and drink at conferences, staff training or business courses, provided they last longer than four consecutive hours
- Meal allowances – a tax-free meal allowance paid by an employer to an employee working overtime
- Executive dining room – an area reserved for those at a certain level of seniority and not open to all employees (in certain circumstances)
- Morning and afternoon tea
- Promotions open to the public and trade displays
- Offshore entertainment – entertainment consumed or enjoyed outside New Zealand
- Sponsorship – fully deductible when the sponsorship is principally for promotion or advertising to the public
- General entertainment where the business comprises provision of the forms of entertainment, which would otherwise be limited by 50%
- Samples provided to persons who are not employees or associates for the purpose of advertising or promotion
- Entertainment provided to members of the public for charitable purposes
- The cost of providing entertainment to a person to review it for a publication
- Entertainment liable for FBT
Fringe benefit tax (FBT)
Any type of entertainment expense that is liable for FBT is fully deductible for income tax purposes. Generally, any entertainment benefit that employees enjoy at their discretion outside their employment duties is subject to FBT.
GST
For GST registered businesses, an input tax credit will be immediately available to the business on the basis it has been principally incurred for the furtherance of their taxable activity. Annually, an adjustment must be made on a business’ GST return to pay GST on the 50% non-deductible expenses previously claimed. These expenses are considered to be supplies under the GST rules for private purposes.
