Last Minute Christmas Gifts for You, Tenants, and Staff, and the Usual Gift from IRD
15 December 2020
Last minute Christmas gifts for you, tenants, and staff, and the usual gift from IRD
By Ross Barnett - Property Accountant
If you are a last minute person and still thinking about Christmas gifts, here is some information from a tax perspective.
1. Food and Booze
You give a gift to tenants or staff - $200 of Champagne. This gives you a happy tenant, but from a tax perspective this is caught by the entertainment rules and only 50% deductible.
- Profitable rental paying 33% tax. Pay $200, pay 33% less tax on 50% = $33, net cost $167
- GST registered property trader, commercial property owner or business, making profit and paying tax at 33%. Pay $200. Claim GST on 50% = $13. Claim tax on $87 GST excl at 33% = $29. Net cost $158
- Residential rental making a loss which is ring fenced. Pay $200 and no immediate tax saving = $200 net cost. Would be $33 future benefit of losses, which could be used when you have profit from residential rentals in future.
- Profitable rental paying 33% tax. Cost $200, saves 33% less tax = $66, net cost $134
- GST registered property trader, commercial property owner or business, making profit and paying tax at 33%. Cost $200. Save GST = $26. Save tax on $174 GST excl at 33% = $57. Net cost $117
- Residential rental making a loss which is ring fenced. Cost $200 and no immediate tax saving = $200 net cost. Would be $66 future benefit of losses, which could be used when you have profit from residential rentals in future.
So a discount is more effective than Food and Booze, as the discount is 100% deductible. In the $200 example, it is $33 cheaper to give the discount than the Champagne.
3. Other smarter gifts
Petrol vouchers, Mitre10 vouchers, furniture, clothing, plants for garden – These are all 100% deductible as are not entertainment, so give the full 100% benefit the same as point 2) Discounts.
If you want to give your tenant or staff a gift, Gifts not associated to Food and Booze will be 100% deductible, so more effective than Food and Booze. In the $200 example, it is $33 cheaper to give a petrol voucher than the Champagne.
4. Gifts to yourself and staff
Need to be careful of Fringe Benefit Tax:
- Over $300 per quarter, or $1,200 annual (if on annual basis for FBT), then liable for FBT. If you or staff already getting a vehicle or other benefits liable to Fringe Benefit ,you might already be over this threshold, and any gifts subject to FBT.
- Rental properties in LTC, personal shareholding – These entities are excluded from FBT rules for the shareholders, so you can’t give yourself a $300 gift each quarter.
- Normal company – you could give yourself gifts up to $300 per quarter, as long as you don’t get other Fringe Benefits. As above in point 1), keep away from Food and Booze.
- Sole trader, Partnership – not included in FBT rules, so you can’t give yourself a $300 gift each quarter.
- There are some structures not covered by the above and these are more complicated. You are best to have a quick chat with me, so that I can look at specifics and advise you if you can do gifts to yourself.
Property Accountant | New Zealand
Property Newsletter - please join - http://cswaikato.co.nz/newsletter
Facebook Page - we do loads of great videos about property investing: https://www.facebook.com/thepropertyaccountant