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Are client gifts of food and drink tax deductible?

For a long time many have considered that gifts of food and drink given to clients, say at Christmas, have been fully deductible for tax. Certainly, for a good while Inland Revenue thought so too.

However, Inland Revenue has recently changed their minds and have affirmed the fact that they see these food and drink gifts being subject to the entertainment rules. These rules operate to allow only 50% of the cost to be deducted for income tax and claimable for GST purposes.

We have reviewed the legislation around these sorts of expenses and they are correct. The 50% limit will apply, and always has.

But, given the confusion around this topic, Inland Revenue have been reasonable and have stated that they will not be seeking any changes to tax positions taken prior to 1 September 2016.

Therefore, before filing your September GST return it may pay to check if you have spent any money on client gifts of beer, wine or chocolates. If so, just remember to make the adjustment.

And, going forward towards Christmas and the silly season it may pay to consider the actual cost to you of buying such gifts for your clients now that half the tax benefits have been removed. It may be an idea to break from tradition and give them something for Christmas that won’t just end up on the hips and become part of a New Year’s resolution.

Our next post will look at Christmas parties and staff gifts and their treatment for tax.

Commissioner’s operational position on deducting expenditure on gifts of food and drink

Inland Revenue guide to entertainment expenditure.  Just click on this link and download the guide.

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