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Understanding FBT & tax: gifting to employees and clients

three wrapped gifts with a thank you card for employees and clients

You may want to show your appreciation by giving employees or clients gifts during the festive season. However, here are some FBT (Fringe Benefit Tax) and tax rules you need to follow. 

Essentially, there are 2 important things to consider: what you can gift and how much you can gift. 

The gold rule for gifting employees and clients is if the gifts consist of food and/or drinks, you’re only eligible for claiming 50% of expenses as part of a tax deduction. However, if your gifts consist of some foods and/or drinks but not all (e.g., gift box, gift basket), the food and drink items are 50% tax deductible and the rest of the non-food/drink items is 100% tax deductible. 

Besides the nature of your gifts, you’ll also need to consider if you are gifting more than $300 (GST inclusive). In other words, if your gift to your employee is less than $300 per quarter, you may be exempt from FBT. However, if the total value of the gift exceeds $300 per quarter, then it’s subject to FBT.

In other words, as long as you don’t provide any single employee with a gift worth more than $300 each quarter (March, June, September, and December), the costs are 100% deductible. But always bear in mind, if the gift is food and/or drink, then only 50% can be claimed.​

If you’re gifting vouchers, GST can’t be claimed on the purchase price. The 50% rule applies here too – if the vouchers relate to food/drink, you can only deduct 50% of the cost.​

If you’re providing a staff shout, only 50% of the expenses can be claimed because food and drinks are being provided.​

For gifts to clients and suppliers, the rules are exactly the same as above, except there is no set dollar value.​

You don’t need to make any adjustments at your end for GST or splitting out non-deductible entertainment – your accountant will do that when the financial statements are prepared.​ Entertainment expenses can be tricky, we have one blog that explains this topic in more detail here

We’ve listed some example expenses for tax deduction: 

100% tax deductible 

  • Books
  • Calendar
  • Other gift items that are not food or drink

50% tax deductible

  • Meal voucher
  • A bottle of wine 
  • A box of chocolate

Alternative gifts

It’s becoming increasingly more common for gifts not to be in the form of food and/or drinks. Think luxury blankets and throws, plants, tickets to events, flowers, subscriptions, cooler bags, and anything else that’s reasonable. These types of gifts are 100% deductible for income tax, and GST can be claimed as well.​

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Can I give myself a gift?

If you’re an employee (or a shareholder-employee) receiving PAYE-paid wages from the business, you can. Otherwise, no.​

Why the limit of $300?

This is set by the IRD. Anything more than $300 (GST inclusive) per quarter is captured by the FBT regime. You really don’t want to go there…​

What if I exceeded this $300 threshold?

Gifting over $300 is not tax-effective although you still can claim GST on the gift but the value of the gift will be subjected to FBT. Read more on fringe benefit tax. 

We’ve compiled a list of business expenses you can deduct, download this checklist and save your taxes in just under 5 minutes!

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We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.  

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