ENTERTAINMENT
EXPENSES
Expenditure
or loss incurred in providing certain business related entertainment is subject
to a special regime which operates to limit deductions for such expenditure to
50%.
The
following types of entertainment are subject to a limited deduction:
 |
Corporate
boxes, marquees, and similar exclusive areas (permanent or temporary) at
sporting, cultural or other recreational areas |
|
Holiday
accommodation (other than that which is merely incidental to business
activities or employment duties), |
|
Pleasure
craft |
|
Food
and drink provided at any of the venues above |
|
Food
and drink provided or consumed off the taxpayer’s premises (subject to
certain exceptions) |
|
Food
and drink provided on work premises bit in areas restricted to certain
employees (e.g. a boardroom or executive dining room), or at a party |
Entertainment
expenditure also includes incidental expenses such as the cost of waiting staff,
crockery hire, the provision of music etc.
Exclusions
to this regime include:
|
food
and beverages consumed on business trips (unless with an existing business
contact or guest) |
|
certain
conferences |
|
educational
courses |
|
promotional
events and trade displays, |
|
light
meals provided in the course of employment |
|
non-taxable
overtime meal allowances |
|
entertainment
for charitable purposes |
|
entertainment
outside New Zealand |
Thus
when a person travels away on business and takes a client out to dinner the cost
of both the meals will be only 50% deductible.
However a maufacturer promoting a motor vehicle accessory to a group of
motor vehicle dealers will be able to claim the full cost of food and drink
expended for tax purposes.
Records
such as invoices and receipts must be kept for all entertainment expenses.
Records should also be kept of the date the expenses were incurred, the
name of the person(s) entertained, the business they represent, the position
they hold, and the reasons for the entertainment.
When
calculating GST you must make an adjustment for the non-deductible amount.
This adjustment is one-ninth of the amount that is non-deductible for
income tax rather than 12.5%. The
following is an example of how this is calculated:
Swen
Svenson took his clients out for a business lunch that cost $225.00 including
GST. The whole $225.00 would
be included in Box 12 of the GST Return to claim the tax credit
|
Amount
of Expense
|
$225.00
|
|
Subtract
GST (one-ninth)
|
25.00
|
|
GST
exclusive amount
|
200.00
|
|
|
|
|
Amount
not deductible for income tax (50%)
|
100.00
|
|
|
|
|
GST
Adjustment is on-ninth of non-deductible
amount
|
11.11
|
|
|
|
$11.11
would be included on the calculation sheet and in the adjustments total in Box
10 of the GST Return.
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we can assist further, please email TotalAccounting as
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