FBT vs PAYE vs Entertainment Expenditure

FBT vs PAYE vs Entertainment Expenditure



In the context of Christmas parties, gifts, and staff bonuses, various taxation rules come into play, namely the entertainment rules, PAYE, and FBT.

The entertainment rules place a 50% deductibility restriction on certain expenditures related to recreational events, such as Christmas parties or corporate hospitality. This limitation is grounded in the recognition that there is typically a private enjoyment aspect to such events. Both on-site and off-site consumption of food and drink can fall under the purview of the entertainment rules.

FBT (Fringe Benefit Tax) comes into play when non-cash benefits are provided to employees as part of their employment. While there is some overlap with the entertainment rules, the latter generally takes precedence over FBT, except in cases where the employee can choose when to enjoy the benefit or if the benefit is enjoyed outside New Zealand and not in the course of employment duties.

PAYE (Pay As You Earn) rules apply to monetary compensation provided to employees, covering bonuses, gratuities, and reimbursements for personal debts. The PAYE regime captures direct payments by employers for personal expenses incurred by employees.


Scenarios and Examples:

  • Christmas Event Costs:

Expenditures related to off-premises Christmas events, including venue hire, food, and drink, fall under the entertainment rules, allowing a 50% deduction. This also applies to incidental costs like glassware, waitstaff, and music.

  • Employee Vouchers:

If an employer gives vouchers for a restaurant meal as a gift, and the employee can choose when to use them, the cost of the voucher falls under FBT. However, reimbursing employees for meals would be subject to PAYE.

  • Gifts to Employees:

Most gifts, including gift baskets with food and drink, are subject to FBT as they can be enjoyed at the employee’s discretion. Some benefits subject to FBT may qualify for exemptions, such as the de minimis exemption.

  • Staff Cash Bonuses:

Cash bonuses paid to employees are taxable under PAYE, and they should be taxed at the ‘extra pay’ rate. These bonuses are considered payments made in connection with employment.

  • Company Vehicle for Personal Travel:

FBT arises when a company vehicle is available for personal use by an employee. If an employee pays for their petrol and provides evidence to the employer, these costs may be deducted from the taxable value of the fringe benefit, reducing the FBT payable.

  • Gifts to Clients and Customers:

Oddly, the entertainment regime is considered to apply not just to food and drink consumed at a function but to any provision of food and drink. Inland Revenue specifies that certain items in a gift basket may have different tax outcomes, with some being fully deductible and others only 50% deductible.


Still Confused?

In case of any confusion or questions, it is recommended to consult with usual advisor.