Just in time for Christmas, the IRD have released a new operational statement on Entertainment Expenses.
The significant change is that potentially the gift baskets that are provided to either clients or staff will be subject to the entertainment rules thus becoming subject to the 50% deduction limitation rule.
The IRD use the following example
Bob is a real estate agent. Each time he arranges the sale of a house, Bob delivers a bottle of champagne to the owner. He also sends a gift basket by courier to the purchaser.
The gift basket contains a bottle of wine, some cheese and various household items such as tea towels and soaps. Bob will only be able to deduct 50% of the cost of the bottle of champagne.
This is because he is providing entertainment in the form of drink and doing so off his business premises. For the gift basket, Bob can deduct the full cost of the tea towels and soap, because an appropriate
apportionment should be made for items that are not food and drink.
However, he can only deduct 50% of the cost of the wine and cheese (or, if the cost is not separately identifiable, an amount appropriately apportioned as the cost of the wine and cheese).
If you have in the past provided gift baskets, please ensure that you use the correct tax (and GST treatment) from now on.