A guide to festive finances for business owners

The festive season is a time of giving, and for business owners, that often means rewarding your team for their hard work with bonuses, parties, and gifts. But, as much as we all enjoy the holiday cheer, it's crucial to understand how these festive expenses impact your business finances and tax obligations.

Here’s a breakdown of how to approach Christmas bonuses, parties, and gifts for your team in a financially savvy way.

Christmas bonuses: recognising hard work

Bonuses are a fantastic way to show your team that their hard work hasn’t gone unnoticed. Whether it’s a lump sum or performance-based reward, bonuses can boost morale and show appreciation. But before you start dishing out the festive cash, here are a few things to consider:

• Tax implications: Christmas bonuses are considered part of your employees' income, which means they are subject to PAYE (Pay As You Earn) tax, as well as ACC levies. Make sure these deductions are calculated correctly before the bonus lands in your employee’s account. Failing to account for taxes can cause a last-minute scramble in January!
• Budgeting for bonuses: Bonuses should be factored into your budget early in the year, not as an afterthought. Calculate a total amount you’re comfortable spending and allocate it in a way that reflects the hard work of each team member. Remember, while bonuses are a wonderful gesture, they should also be financially sustainable for your business.

Christmas parties: planning a celebration with purpose

The office Christmas party is often the highlight of the year, but it’s not just about the food, drinks, and laughter – it’s also an expense that needs to be carefully managed. Here’s how to approach your festive event:

• Understanding FBT (Fringe Benefit Tax): In New Zealand, Christmas parties can fall under the FBT regime if they take place offsite. If you’re covering the cost of food, drinks, or entertainment outside your business premises, FBT could apply. However, if the event is held on your business premises, you may be exempt from FBT – something worth considering when choosing the location.
• Deductibility rules: Generally, 50% of the costs associated with entertainment, including Christmas parties, are tax-deductible. This includes food, drinks, and venue hire if it's offsite. It’s essential to keep receipts and clearly document your expenses to make the deductions easier when tax time rolls around.
• Setting a budget: Set a budget for your Christmas party that balances the festive spirit with financial practicality. It’s tempting to go all out, but remember that a great party doesn’t have to break the bank. Be transparent with your team about what’s on offer and plan a celebration that everyone can enjoy without causing a financial headache for the business.

Christmas gifts: thoughtful tokens of appreciation

Small gifts are a wonderful way to thank your team for their contributions, but it's wise to keep track of how these fit into your financial plan.

• FBT and gifts: If you’re gifting items like wine, chocolates, or gift vouchers, they may be subject to Fringe Benefit Tax, depending on the value and nature of the gift. In New Zealand, gifts below $300 per quarter, per employee, are exempt from FBT, but anything above this limit may attract tax. The good news? Cash bonuses are not subject to FBT, as they’re taxed under PAYE.
• Tax deductibility: Unlike parties, gifts can be fully deductible as long as they’re seen as “business-related.” For example, giving a gift basket or branded merchandise to a client or supplier can be a fully deductible business expense. Gifts for staff are generally 100% deductible unless they exceed the FBT exemption threshold.
• Considerations for choosing gifts: Personalised gifts can go a long way in showing your appreciation, but you don’t have to spend a fortune. Small, thoughtful items that reflect your team’s interests or the company’s values can be just as meaningful as high-end items. Keep it modest, sincere, and within your budget.

‍Wrapping up the year with confidence

The holiday season is an opportunity to celebrate and reward your team, but it’s also a time to be mindful of how these expenses impact your bottom line. Balancing the joy of giving with smart financial decisions will ensure you start the New Year on the right foot – without any unexpected tax surprises.

If you’re unsure about any of the tax implications, reach out to us! We can guide you through the nuances of FBT, PAYE on bonuses, and deductibility rules for Christmas expenses. We’re here to help you make the most of your business finances, every season of the year.