The Christmas season can bring challenges and opportunities for small businesses in New Zealand. It’s a time for planning memorable Christmas events, understanding the tax implications of holiday gifts and entertainment, and managing cash flow and staffing effectively. Proper planning is crucial whether this season is your peak or a quieter period. Let’s explore how you can ensure your business thrives this festive season.
Responsibilities Around Christmas Parties
Christmas parties are a great way to celebrate the year’s achievements with your team. Remember, an inclusive and safe party is key. Choose a venue that aligns with health and safety standards and set a reasonable budget. Encourage responsible drinking and provide transport options for your staff to ensure everyone gets home safely.
Tax Considerations for Gifts and Entertainment
Navigating the tax implications of festive gifts and entertainment can be complex. While some expenses are deductible, there are specific rules and limits. For instance, gifts to staff and clients may be taxable if they exceed particular values. If you need clarification on the tax implications of Christmas gifts or entertainment expenses, speak with a tax professional like the team at DFK OGC.
Specifically, some of these tax considerations include:
- Staff Gifts and Entertainment: Gifts given to staff are generally fully deductible and exempt from Fringe Benefit Tax (FBT) if the total cost is less than $300 inclusive of GST per staff member in one quarter. However, the total combined benefits to all employees in a year can be at most $22,500. Gifts should be ‘non-entertainment’ items like vouchers, hampers, flowers, and wine to qualify. For entertainment, if you invite your team to an event that qualifies as a business-related entertainment expense, which is only 50% deductible, it is not liable for FBT.
- Cash Bonuses for Staff: Cash bonuses must go through the payroll system with PAYE and other applicable payroll taxes deducted. These are treated as ‘lump sum’ payments and are taxed at a flat rate based on the employee’s income range.
- Client Gifts: Some gifts to clients are fully tax-deductible, while others are only 50% deductible if they include food, drink, or other ‘entertainment’. Items like hampers with gourmet food, chocolates, Christmas ham, or wine are 50% deductible. Non-food items like books, gift vouchers, or flowers are 100% deductible.
- Functions and Events: Some entertainment expenses are 50% tax deductible, while others are fully deductible. Examples of 50% deductible expenses include staff Christmas parties (on or off business premises), drinks at a bar, or meals with clients or team members. Fully deductible items could consist of morning or afternoon teas for the team, catering a team lunch in the office, or donating to a Christmas party in a children’s hospital.
- GST Adjustments: It’s important to make a GST adjustment for entertainment expenses that are 50% deductible. This adjustment should be calculated when preparing your income tax return and included in your next GST Return.
These rules highlight the importance of understanding the tax implications of different gifts and entertainment expenses during the festive season in New Zealand.
Managing Cash Flow During the Festive Season
Effective cash flow management is vital, whether you’re gearing up for a sales surge or preparing for a quieter period. Plan your inventory and staffing to match your sales forecast. Strategies like early payment incentives or Christmas promotions can help maintain a healthy cash flow if business typically slows down during this period.
The festive season often requires careful staff management. If you need additional staff, start your recruitment process early. Stay informed about employment laws related to overtime and holiday pay. And remember, acknowledging your team’s hard work goes a long way in keeping morale high during this busy season.
Successfully navigating the festive season requires thoughtful planning and adaptability. Each aspect plays a crucial role, from organising your Christmas party to managing cash flow and staffing. For specific guidance on tax-related matters, especially those unique to the festive season, DFK OGC is your ideal partner. Their expertise can help you make informed decisions, ensuring a smooth and prosperous season for your business.
We wish you a successful and stress-free Christmas period. Let’s make this festive season a triumph for your business!