Some business-related entertainment expenses are 100% deductible. Others are set as 50% deductible because they have a significant private element. Even if you think that the private element was more or less than 50% of the expense, you can only claim 50% of the expense as a deduction.
The following types of entertainment include a private element and can't be 100% deducted. In general, an entertainment away from work or out of usual work hours has a private element.
Corporate boxes
Expenses for entertainment you provide in:
boxes
marquees
tents
or similar exclusive areas (permanent or temporary)
at cultural, sporting, other recreational events or away from your business premises, are only 50% deductible. This also applies to the cost of tickets and any food and drink provided.
Holiday accommodation
If you have business expenses for a
holiday home,
timeshare apartment or
similar venue,
you can deduct only 50% of the cost of accommodation as well as 50% for food and drink expenses relating to using the accommodation.
You can claim a deduction of 100% if using the accommodation is secondary to the business activities or employment duties.
Example:
Catriona is self-employed and travels to Queenstown to attend a meeting with business clients. Because no other accommodation is available she stays at a holiday home while in Queenstown for the meeting. Catriona can deduct 100% of the cost of the holiday home as an expense.
Recreational boats
You can deduct only 50% of business expenses on:
yachts
launches, or
similar recreational boats.
You can deduct 50% of the cost of food and drink accompanying the use of a recreational boat.
Example:
Eileen is a business owner and hires a large yacht to take her management team out on the harbour for a planning day. The cost of the trip is 50% deductible.
Food and drink at work
You can deduct only 50% of the cost of food and drink you provide at your business premises (other than light refreshments):
at a social event, eg, celebration meal, party, reception, or
in an area restricted to senior employees, such as an executive dining room.
This rule applies whether the entertainment is provided to staff or to guests invited from outside the business.
Example: ABC Ltd puts on a Christmas party for its employees. It holds the party at work. The company can claim 50% of the costs.
Light refreshments, like morning and afternoon teas, are 100% deductible.
Offsite food and drink
Food and drink provided away from your business premises is only 50% deductible.
Example: Hannah invites a supplier to a business lunch at a local restaurant and pays the bill, which comes to $160. She deducts 50% of the cost ($80) in her income tax return.
Gifts of food and drink
Gifts of food and drink that will provide a private benefit to the recipient and a business benefit to the taxpayer are only 50% deductible.
Example: Real estate agent Bob delivers a bottle of champagne to the owner each time he arranges the sale of a house. He can only deduct 50% of the cost of the bottle of champagne as he is providing entertainment away from his business premises in the form of drink.
Bob also sends a gift basket containing a bottle of wine, some cheese and various household items such as tea towels and soaps to the purchaser. He can deduct the full cost of the tea towels and soap, because these items are not food and drink. But he can only deduct 50% of the cost of the wine and cheese. If the cost can't be identified separately, then an appropriate amount should be apportioned.
Supporting expenses
If you provide entertainment that's only 50% deductible, you can only deduct 50% of any "supporting" expenses. For example:
running costs, repairs and maintenance for corporate boxes, holiday accommodation and recreational boats
hire of crockery, glasses, waiting staff and music.
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