Inland Revenue – The Grinch that Stole Christmas?

Media Release
December 7, 2007

 
Inland Revenue – The Grinch that Stole Christmas?
 
Every year thousands of generous New Zealand employers take the opportunity to wish their staff a Merry Christmas by providing a gift or party. While making preparations for Christmas 2008, employers should pause for a moment to ensure their Christmas festivities are structured in a tax efficient manner.

Gifts in the form of non-monetary remuneration are typically subject to the Fringe Benefit Tax (FBT) regime. However, according to Andrew Dickeson a tax specialist and Associate Director with Staples Rodway, there are a number of gifts that are exempt from FBT which employers can take advantage of.  

“An exemption from FBT on certain presents, is termed ‘unclassified benefits’ and would include gifts such as vouchers and hampers, where the total value of all unclassified benefits provided to the employee in the FBT quarter does not exceed $200 and total unclassified benefits to all employees doesn’t exceed $15,000 for the year.

“This also includes any gift consumed on the premises of the employer. However, coming up with a gift which falls within this exemption may require some creative thinking - say massages or a homeopathic consultation. While not the most conventional of gifts, income protection insurance is another option that can now be provided free of FBT,” says Mr Dickeson.

Another benefit for employers is the ability to pool certain unclassified benefits and pay FBT at a flat rate of 49 per cent. This can be advantageous where employers hire a number of people in the top tax bracket.

Staff Christmas parties are another area usually subject to the entertainment regime which seeks to limit deductions on relevant costs by 50 per cent. It is worth noting, the regime will apply regardless of whether the party occurs on or off the premises of the employer. 

“Many employers have criticised the government’s need to disincentivise the annual Christmas party.  Indeed, in Australia a more favourable tax treatment is provided - if the party is held on business premises on a work day with only a light meal and no alcohol, the entire cost is deductible with no impost of FBT or being subject to the entertainment regime,” adds Mr Dickeson.

It is important for employers to take their tax position into account when deciding whether the FBT or entertainment regime provides a lesser cost. If the employer is in a tax loss position, reduced deductions under the entertainment regime will not be as detrimental as the cash cost of paying FBT.

“A word of warning, many businesses are often unaware of the need to deduct withholding tax from payments made to entertainers performing at staff functions.  An exception to this rule exists only if payment is made to a company or an individual with a certificate of exemption,” says Mr Dickeson.

Ends
 

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