Having a drink or a meal with a business contact is even better when you know how to claim back entertainment expenses. The individual amounts might not seem like much to begin with but they add up quickly and can substantially reduce your tax bill over the year. Putting in place a simple system for claiming entertainment expenses can make the process feel effortless.
Entertainment can mean food and drink, social events, trips, accommodation, privileges, musical, sporting or theatrical events, and freebies such as samples or gifts.
Very specific rules apply to different categories of entertainment expenses. However, many of the rules are for large companies and don’t relate to most people who are self-employed. For example, not many self-employed people have a corporate box, serve meals to board members or host overseas conferences.
So to make things simple we’ve put together this practical guide specifically for self-employed kiwis – based on the offical New Zealand tax guides (used by accountants) and the latest information from IRD – to help you claim entertainment expenses with confidence.
Which entertainment expenses can you claim?
Below are the common entertainment expenses you can claim. For a complete list of all self-employed expenses, check out our personal tax deductible expenses article.
If you’re unsure what to claim, a good rule of thumb is if it’s helping you earn your income it’s usually claimable.
Most entertainment expenses are 50% claimable while a few exceptions are fully claimable.
The entertainment expenses below are all 50% claimable unless stated otherwise 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 still only claim 50% of the expense.
Food or drink with a client – Food or drink with a current or potential client, staff, subcontractors or suppliers. This could be out at a bar/restaurant/cafe or at your place of work such as an office, temporary work site or your home if that where you work from.
Social events – Food and drink you provide for social events, such as a work party or Friday drinks. The event can be on or off your business premises. Includes supporting expenses such as hire of wine glasses and wait staff for a party.
Gifts of food and drink – Gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them (for example, if you give a bottle of wine to a client when a project is completed)
Freebies – You can only deduct 50% of the cost of freebies you give employees or people associated with you. But you can claim 100% of the cost of freebies promoting your business.
The entertainment expenses below are all 100% claimable unless stated otherwise.
Gifts other than food or drink – Gifts for employees or clients other than food or drink. You can’t give gifts of cash and any gifts for employees must have a maximum value of $300 per quarter per employee. Staff discounts are considered a gift.
Reviewers – The cost of providing entertainment to a person to review your business for a paper, magazine, social media or other medium, is fully claimable.
Samples – The cost of providing samples for advertising or promotional purposes is fully claimable.
Entertainment for charity – Entertainment you supply to the general public for charitable purposes. Such as donating food to a Christmas party in a children’s hospital.
Entertainment expenses that probably aren’t relevant to you
Corporate boxes – The cost of a corporate box, marquee or tent at a recreational event is 50% claimable. This also applies to the cost of tickets and any food and drink provided.
Holiday accommodation – Business use of a holiday home, timeshare apartment or similar venue is 50% claimable. This also applies to any food or drink provided at the property.
Morning and afternoon teas – Morning and afternoon teas in an executive dining facility or at a conference are fully claimable.
Conferences – The cost of food and drink at a conference or business course you host, which continues for four hours or more, is fully claimable.
Public promotions and trade display – Entertainment provided by a business as part of a function open to the public, or at trade displays to advertise the business, is fully claimable. This includes the costs of cutlery hire, food and drink, venue hire and equipment.
Sponsorship – The cost of sponsoring entertainment, such as local sports team, is fully claimable where the sponsorship is mainly for promotion or advertising to the public.
Boats – The cost of hiring a recreational boat to entertain business contacts is 50% claimable. Including any food or drink provided.
Offshore entertainment – Entertainment outside New Zealand, such as hosting a conference in Australia, is fully claimable.
How to calculate the GST on expenses
If you’re GST registered the GST content on entertainment expenses can be claimed as they’re paid, in each GST return period, or at the end of your tax year.
When working out GST on an expense you first need to seperate the GST amount from the expense amount. Here’s Inland Revenue’s recommended formula to find the GST amount from a GST inclusive price – GST Inclusive Price x 3 ÷ 23 = GST Amount.
E.g. if the cost of a meal with a client is $150 then the GST amount is $19.57 and the GST exclusive amount is $130.43.
You then need to apply the 50% rule to both the GST amount and the GST exclusive amount to get the claimable portion.
Eg. for you client dinner the GST claimable portion will be $19.57 x 50% = $9.79. And the income tax claimable portion is $130.43 x 50% = $65.22.
Be sure to claim the GST portion of the expense only in your GST return and not in your income tax return as well.
How to include entertainment expenses in your tax return
When the time comes for actually claiming entertainment expenses in your tax returns, here’s what you need to do. If you’re self-employed and registered for GST you will need to file GST returns throughout the year and an Income tax return (IR3), with a Financial Statement (IR10), at the end of the year. The following instructions relate to online returns which can be accessed through your myIR account.
Add up the claimable GST portion of your entertainment expenses for the return period. Combine this amount with any GST you’ve paid on other expenses during the same period. Add the total to the ‘Total GST paid’ box in your online return.
Income tax return (IR3)
If you earn self-employed income – subtract your entertainment expenses (along with any other expenses) from your total self-employed income to get your self-employed net income. Enter this figure in the ‘Self-employed net income’ box on the income page of your online return.
E.g. if you have $61,000 self-employed income for the year, your entertainment expenses are $2,500 and you have $5,000 of other expenses for the year then 61,000 – 2,500 – 5,000 = $53,500 self-employed net income.
If you earn schedular payments – total up your entertainment expenses (along with any other expenses for the year) and enter this figure in the ‘Expenses related to schedular payments’ box on the income page of your online return. If you earn both schedular payments and self-employed income make sure you only claim your expenses for one type of income.
Financial Statement (IR10)
The IR10 Financial Statement is part of your income tax return and is required for statistical purposes. The figures you enter in the IR10 will not effect how much tax you pay. Enter all your expenses for the year, including your entertainment expenses, into the relevant boxes. Entertainment expenses should go into the ‘Other expenses’ box.
Like you do for any other business expenses you are claiming, you need to keep invoices and other records for your entertainment expenses.
Records of entertainment expenses should include:
- tax invoices for purchases of more than $50 if you want to claim these in your GST return.
- evidence of payment, for example invoices, cash sale dockets or till receipts.
- bank statements for your business related accounts.
- a record of the people you entertain, the date and the reason. Your calendar is usually a good resource for this.
For expenses under $50 simply having a bank statement that shows the purchase is enough.
You need to keep these records for at least 7 years. Records must be in English or Māori.
Claiming entertainment expenses with Solo
Claiming entertainment expenses in Solo is simple. Just select a category for your transactions and all the tax rules and math get done for you. Solo connects directly to your bank account so you don’t have to enter any transactions. Solo even shows you how much income tax, GST and ACC you owe at any moment throughout the year and gives you all the information you need to file your tax returns.