Tax Treatment of Staff Christmas Gifts
Celebrating your team’s hard work is a year-end tradition—but have you ever wondered if your thoughtful gifts are also tax-smart? Before you pack those hampers or plan that party, let’s talk about the tax side of holiday rewards.
Cash Gifts - PAYE
If you’re paying a staff bonus—whether by direct deposit or cash in an envelope—you’ll need to record it in your payroll system. This includes grossing up the payment as a one-off to calculate PAYE, student loan repayments, and Kiwisaver contributions.
Example: Suppose an employee earns a gross income between $70,000 and $139,000 annually, has no student loan (so their PAYE rate is 34.53%, including ACC), and has opted for 3% Kiwisaver contributions. The employer also contributes 3% to Kiwisaver.
To provide a $300 net bonus, you would calculate:
Gross bonus = $300 ÷ (1 - 34.53%) = $300 ÷ 0.625 = $480
Kiwisaver employer contribution = $480 × 3% = $14
Total gross payroll cost = $494.
Gifts of Food and Wine - Entertainment
Christmas hams, Christmas cake, bottles of wine, boxes of chocolate, food baskets are lovely seasonal gifts. Food and beverage are available for the team member to consume at their leisure, so the entertainment rules apply in the same manner as the staff Christmas party. Only 50% of the entertainment expense is deductible for tax purposes.
The entertainment rules stretch to supermarket vouchers too, because they are typically used for food and alcohol purchases.
Gifts which aren’t Food – Fringe Benefit Tax
Beach towels, keep cups, Christmas tree decorations come under the free or subsidised goods section of the Fringe Benefit Tax rules. If you keep the cost of the gifts under the de minimis thresholds of $300 per person per quarter, then you don’t need to include them in your FBT return.
Where the value of all benefits paid to an employee in a quarter, not just the Christmas gift, exceeds $300 in the quarter the whole amount is subject to FBT. The maximum exemption an employer can claim in a year is $22,500. A client of ours gave their manager a Gucci handbag one year, and its cost was over $300, so the whole cost of the handbag should have been included in their company FBT return.
Prezzy Cards and Vouchers – Fringe Benefit Tax
Even though Prezzy cards and mall vouchers might potentially be used at the supermarket, they fall under the FBT rules mentioned above rather than the entertainment rules. Be aware that there is usually a processing fee built into the cost of Prezzy cards, whereas vouchers for a particular mall or store are usually for the value of the voucher with no fees.
Vouchers for harbour cruises, facials, helicopter rides, personal trainers, massage therapy also fall under the FBT rules.
Whether you’re giving cash, vouchers, or a tasty treat, understanding the tax rules can help you maximize the impact of your staff gifts while staying compliant. Thoughtful gestures go a long way in showing your appreciation, and with the right approach, they can be as rewarding for your team as they are tax-efficient for your business. A little planning now means you can focus on celebrating the Christmas season with peace of mind.
- Serena Irving
Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. She likes to receive gifts of chocolate or home baking for Christmas. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.
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An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.
