The staff Christmas party and a thank-you gift are good for the team, but the tax treatment is not the same for every item. Some costs are fully deductible, some are only half deductible, and some can create fringe benefit tax (FBT). Here is the current position for New Zealand employers, checked against IRD guidance on 14 November 2026.
Three ways IRD treats end-of-year spending
IRD sorts business entertainment into three groups. Costs that are completely business-related are 100% deductible with no FBT. Costs with a significant private element, such as social events away from work or outside usual hours, are 50% deductible with no FBT. Benefits employees receive because of the work they do, such as a reward for good performance, are 100% deductible but may be liable for FBT.
The label on the invoice does not decide the treatment. What matters is what was provided, who enjoyed it and why.
The Christmas party: usually half deductible
Food and drink for a social function, such as a staff party, is entertainment with a private element. That generally makes it 50% deductible, whether it is held at your premises or at a venue. Supporting costs, such as hiring glasses or wait staff for the party, follow the same 50% treatment. A party for staff generally does not create FBT, because it is already dealt with under the entertainment rules.
A light morning tea for staff at work is different. Light refreshments are generally treated as 100% deductible, so do not code a Christmas morning tea and a full evening function to the same account without checking.
What does 50% mean in dollars?
As a simple illustration, assume a GST-registered business spends $2,760 including GST on a staff party at a restaurant. The GST-exclusive cost is $2,400, so the income tax deduction is $1,200.
For GST, you can usually claim the GST on the full cost when you pay the bill. Once a year, you then make an adjustment in a GST return for the non-deductible half of your entertainment spending. In this example, that adjustment is about $180. The timing of the adjustment depends on when your income tax return is due or filed, and whether you have a tax agent.
This is an illustration, not a calculation of your position. Mixed events, client attendance and off-site costs can change the result.
Staff gifts and vouchers: watch the FBT limits
Non-cash gifts to staff, such as a voucher, a gift card or a non-food gift, are generally fringe benefits. Gift cards are a classified benefit, but IRD treats them the same as unclassified benefits when working out the FBT limits.
No FBT is payable if the GST-inclusive value stays within both limits:
- $300 per employee per quarter, or $1,200 a year if you file annual or income-year FBT returns.
- $22,500 a year across all employees.
If you go over either limit, FBT applies to the full amount, not just the excess. The limits are cumulative, so a December gift is added to any other unclassified benefits the same employee received in that quarter, such as discounted goods or a paid-for subscription.
Since 16 April 2025, employers can choose to apply either the FBT rules or PAYE to gift cards. Pick one approach and apply it consistently.
Food and drink gifts, such as a hamper or a bottle of wine, are generally treated under the entertainment rules rather than FBT, which usually makes them 50% deductible. A hamper that mixes food with non-food items may need to be split.
Gifts to clients
The same distinction applies to clients. Food and drink gifts that clients enjoy privately, such as wine or chocolates, are generally 50% deductible. Branded promotional items, such as stationery or a calendar, are generally 100% deductible when they are given to clients.
Your next practical steps
- Keep the party invoice and note who attended, where and when.
- Code party costs, morning teas and client gifts to separate accounts so the 50% items are easy to find.
- List every gift card, voucher and non-food gift by employee, with any other benefits in the same quarter.
- Check the $300 per employee and $22,500 total limits before you buy, not after.
- Flag your 50% entertainment total for the annual GST adjustment.
Tāmaki Advisory can review your party and gift spending, set up entertainment coding in Xero and check whether any FBT is due. Bring the receipts and a list of who received what, even if the coding is not finished yet.
Make the next step practical
Use the ideas here as a starting point for a better conversation. The right answer depends on your records, timing and circumstances, so keep the assumptions visible and revisit them when something changes.