Christmas Entertainment & Gift Rules: What Your NZ Business Can Claim

As the festive season approaches, many New Zealand businesses are planning staff Christmas parties, purchasing gifts for employees, and showing appreciation to valued clients. With these plans, it’s essential to familiarise yourself with Christmas Entertainment & Gift Rules. While these gestures are great for morale and relationships, understanding the tax implications can be tricky.

The rules around entertainment expenses, Fringe Benefit Tax (FBT), gift deductibility, and vouchers can quickly become confusing. Getting them wrong could mean missed deductions or unexpected tax bills. To help you navigate the Christmas period with confidence, we’ve broken down everything you need to know.

1. Staff Christmas Parties – The 50% Rule

Planning a Christmas function for your team? Whether you’re booking a restaurant, hosting drinks at the office, or hiring a venue, the tax treatment is the same: staff Christmas parties are classified as entertainment and are 50% deductible.

Examples of 50% deductible entertainment expenses:

• Staff Christmas dinner at a restaurant
• Catering for an in-office party
• Bar tabs or alcohol purchases
• Venue hire for celebrations
• Any celebration meal, party, reception, or similar staff function

Why only 50%? According to IRD rules, entertainment expenses that provide an element of private enjoyment to staff are only partially deductible. This applies regardless of where the function is held.

Important note:

There is no FBT on staff Christmas parties, provided the function is open to all staff. However, if only select employees are invited (such as senior management only), FBT may apply.

2. Staff Gifts – Understanding FBT, Vouchers & Deductibility

Giving gifts to your employees at Christmas involves navigating two key sets of rules:

1. Fringe Benefit Tax (FBT) – Do you need to pay tax on the gift?
2. Entertainment deductibility – Can you claim the full cost, or only 50%?

FBT De Minimis Thresholds

A gift to an employee is exempt from FBT only if both of the following conditions are met:

1. Per employee threshold: The total value of unclassified benefits (including gifts) is under $300 per employee per quarter

2. Employer total threshold: The total value of unclassified benefits for all staff is under $22,500 across the last four quarters

If either threshold is exceeded, FBT applies to the full value of all unclassified benefits, not just the amount over the threshold.

Deductibility of Staff Gifts

The deductibility of staff gifts depends on whether they’re classified as entertainment:

100% Deductible (non-entertainment gifts):

• Books
• Flowers
• Plants
• Branded merchandise (company-branded items)
• Office items
• Vouchers for goods/services (excluding food or drink)
• Movie tickets (not corporate boxes)

50% Deductible (entertainment gifts):

• Hampers containing food or drink
• Bottles of wine or beer
• Chocolates, food crates, gourmet baskets
• Restaurant vouchers
• Any gift consisting of food or drink

Vouchers: PAYE vs FBT Treatment

The tax treatment of vouchers depends on whether they can be converted to cash:

Cash-convertible vouchers → PAYE applies

Examples:

• Prezzy cards
• Open-loop gift cards (Visa/Mastercard style)
• Vouchers that can be exchanged for cash

These are treated as salary and wages, so PAYE must be deducted. Deductibility: 100%

Non-cash-convertible vouchers → FBT rules apply

Examples:

• Countdown vouchers
• Mitre 10 vouchers
• Specific-store or specific-item vouchers

Deductibility depends on what can be purchased:

• If it can be used for entertainment (food/drink) → 50% deductible
• If it’s for non-entertainment items → 100% deductible

Learn more: Mastering Fringe Benefit Tax in NZ: Expert Tips

3. Client Gifts – Different Rules Apply

When it comes to gifts for clients, suppliers, or other business contacts, the rules differ from staff gifts:

Important: The FBT $300 de minimis rule does not apply to client gifts. That threshold is exclusively for employee benefits.

Deductibility depends solely on whether the gift is classified as entertainment:

50% Deductible (entertainment gifts):

• Wine or craft beer
• Gourmet food baskets
• Chocolates, biscuits, edible hampers
• Restaurant or café vouchers

100% Deductible (non-entertainment gifts):

• Branded merchandise (pens, diaries, bags, towels)
• Books or stationery
• Flowers or candles
• Plants
• Vouchers for goods/services (not food/drink)
• Movie and event tickets (excluding corporate boxes)

There are no FBT implications for client gifts, as they’re not provided to employees.

4. Mixed Gift Baskets – Apportionment Required

When a gift basket contains both entertainment and non-entertainment items, you must split the costs for tax purposes.

Example:

A real estate agent sends a Christmas basket containing:

• Bottle of wine ($30)
• Cheese ($20)
• Tea towels ($15)
• Handmade soap ($15)

Tax treatment:

• Wine & cheese ($50) → 50% deductible = $25 claimable
• Tea towels & soap ($30) → 100% deductible = $30 claimable
• Total deduction: $55 out of $80 spent

Record-keeping is essential. Keep documentation showing how you calculated the apportionment in case of an IRD audit.

5. Entertainment Outside New Zealand – 100% Deductible

Here’s some good news for businesses with overseas operations or travel: food and drink consumed outside New Zealand is not subject to the 50% entertainment limitation.

This includes:

• Staff meals overseas
• Client meals overseas
• Hospitality and entertainment enjoyed outside NZ borders

These expenses are fully deductible (100%), provided they meet normal business expense criteria (wholly and exclusively for business purposes).

Christmas Entertainment & Gift Rules: Quick Reference Guide

Gift/Expense Type	FBT?	Deductibility
Staff Christmas party	No (if all staff invited)	50%
Non-entertainment staff gift under $300	No	100%
Entertainment staff gift under $300	No	50%
Staff gift over $300 threshold	Yes	100% or 50% depending on type
Cash-convertible voucher	PAYE applies	100%
Non-cash voucher (entertainment)	FBT rules apply	50%
Non-cash voucher (non-entertainment)	FBT rules apply	100%
Client gift (entertainment)	No	50%
Client gift (non-entertainment)	No	100%
Entertainment overseas	No	100%

Christmas Entertainment & Gift Rules – Frequently Asked Questions (FAQ)

Q: Can I claim GST on Christmas entertainment expenses?
A: Yes, if you’re GST-registered, you can claim GST on entertainment expenses. However, along with the income tax deduction, it may still be limited to 50%. Note: GST cannot be claimed on gift vouchers.

Q: What happens if my staff gift exceeds the $300 FBT threshold?
A: If either the per-employee ($300) or total employer ($22,500) threshold is exceeded, FBT applies to the full value of all unclassified benefits, not just the excess.

Q: Are Christmas bonuses treated differently from gifts?
A: Yes. Cash bonuses are salary/wages subject to PAYE and are 100% deductible. They’re not subject to FBT or entertainment rules.

Q: Can I give staff both a gift and have a Christmas party without FBT?
A: Yes, as long as gifts remain under the $300 de minimis threshold. The Christmas party doesn’t count toward the $300 limit if it’s available to all staff.

Q: What records should I keep?
A: Keep receipts, invoices, details of who received gifts, dates, and calculations showing how you apportioned mixed baskets between entertainment and non-entertainment.

Q: Do staff secret Santa gifts count toward the $300 threshold?
A: If the business purchases the gifts, yes. If staff purchase them personally, no.

Get Your Christmas Tax Planning Right

Understanding Christmas entertainment and gift rules doesn’t have to be stressful. With proper planning and expert guidance, you can celebrate the festive season with your team and clients while staying fully compliant with IRD requirements.

Getting it right means you’ll maximize your deductions, avoid unexpected FBT bills, and keep accurate records for your business.

Need Expert Help?

The team at Business Like NZ Ltd specializes in helping Kiwi businesses navigate complex tax rules, including entertainment expenses, FBT, and year-end compliance. We provide practical, straightforward advice tailored to your business needs.

Whether you’re unsure about how to treat a specific gift, need help with FBT calculations, or want to ensure your Christmas expenses are correctly recorded, we’re here to help.

Don’t leave your business tax matters to chance this Christmas.

Contact Business Like NZ Ltd today:

• Phone: 09 262 0726 Get in touch for personalized advice
• Email: Reach out to your client manager with your questions
• Book a consultation: Let’s discuss your business and tax needs info@blnz.co.nz

Our experienced team will ensure you’re claiming everything you’re entitled to while staying compliant with IRD rules. From entertainment expenses to complex FBT situations, we’ve got you covered.

Make this festive season stress-free – contact Business Like NZ Ltd for all your business and tax needs.

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Disclaimer: This article provides general information only and should not be relied upon as specific tax advice. Tax rules can be complex and may change. Always consult with a qualified tax professional regarding your specific circumstances.