Gift-giving and tax

Many businesses like to acknowledge their employees or clients with gifts, especially at the end of the year. However, it's worth understanding how the IRD treats different types of gifts, especially when it comes to tax-deductibility and Fringe Benefit Tax (FBT). The rules vary based on who receives the gift and the nature of the item, so planning ahead helps you avoid unexpected tax obligations or missed deductions.​

Gifts to employees are considered unclassified fringe benefits. These fall under the de-minimis exemption, meaning you may be exempt from paying FBT as long as the value of the gifts you provide employees is less than $300 (GST inclusive) per employee per financial quarter. The total value of all unclassified benefits across your entire team must also not exceed $22,500 (GST inclusive) within the financial year.​

If either of these thresholds are exceeded, FBT becomes payable on the full value of all gifts provided that quarter.​

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

While FBT determines whether an employee gift is a taxable benefit, the type of gift determines what percentage of the cost is tax-deductible (regardless of whether it's for a client or employee).​

The golden rule: if the gift consists of food and/or drinks, you can only claim 50% as a tax deduction, while non-food/drink gifts are 100% deductible. ​

However, if your gift is a mix of items (e.g. a gift basket) and it consists of some foods/drinks but not all, the food and drink items are 50% tax deductible, and the rest of the non-food/drink items are 100% deductible.​

If you purchase gift vouchers, the 50% rule still applies if it's related to food/drink (e.g. a supermarket or restaurant voucher). You also can not claim GST on the purchase price of any vouchers.​

If you’re providing a staff party, only 50% of the expenses can be claimed as food and drinks are being provided.​ (You can learn more about this in our entertainment expenses guide.)​

In both of these examples, the items will need to be split into 50% deductible (the chocolate/wine items) and 100% deductible (all the other items).​

It's helpful to keep a simple record of each gift, its value, who received it, and whether it contains food or drink. Tracking these details makes it easier to monitor the FBT thresholds during the year.​

For items that are only 50% deductible, you can make this adjustment when reconciling your accounting software. Don't worry if you forget, as your accountant will do this at year-end when they're reviewing your information and preparing your accounts.​