Business entertainment is one of the most commonly misunderstood areas of NZ tax. Many business owners either claim too much (risking IRD scrutiny) or too little (leaving legitimate deductions on the table). The 50% rule and its exceptions are worth understanding clearly.
Most business entertainment — meals, drinks, events — is only 50% deductible in NZ. Some entertainment is fully deductible (100%): meals while travelling overnight for business, light refreshments at a business meeting on your premises, and entertainment provided at a location away from your business that is available to the public. Record every entertainment expense with the date, business purpose, and who attended.
The 50% Entertainment Rule
Under the Income Tax Act 2007, most entertainment expenditure is limited to a 50% deduction. This applies regardless of how business-focused the event was.
The logic: IRD assumes that entertainment always has a personal enjoyment element, so only half is treated as a business cost.
50% deductible entertainment includes:
- Business meals at a restaurant (client lunch, team dinner)
- Food and drinks at a business function or event
- Corporate box tickets, sporting event tickets for clients
- Staff social events (Christmas party, team outing)
- Drinks at a bar after a business meeting
- Meals at a conference or event (other than light refreshments)
Example: You take a client to dinner. The bill is $200. You can claim $100 as a business expense.
100% Deductible Entertainment
Some entertainment expenses are fully deductible (100%):
| Situation | Reason |
|---|---|
| Meals while travelling overnight for business | IRD treats away-from-home meals as fully deductible — not entertainment |
| Light refreshments at a business meeting on your own premises | Tea, coffee, biscuits during a meeting — not entertainment |
| Meals at a conference where attendance is required and meals are included in the conference fee | Incidental to the work purpose |
| Entertainment at a public venue open to the general public on the same terms | e.g., hosting clients at a public festival event |
| Entertainment provided to employees as part of their duties | Rare — e.g., a food critic eating for work |
Practical tip: Coffee and biscuits in your office for a client meeting = 100%. A three-course lunch at a restaurant for the same clients = 50%.
What Is NOT Entertainment (Fully Deductible)
These are not entertainment — they are normal business expenses fully deductible:
- Meals for employees working late in the office (not social — overtime food)
- Subscriptions to professional networking organisations
- Advertising or sponsorship costs (separate rules apply)
- Staff training with catering included (where the primary purpose is training)
- Working lunches where the business discussion is the primary purpose and no meal would have been purchased otherwise — grey area, seek advice
Alcohol — Is It Deductible?
Alcohol is treated the same as food for entertainment purposes — subject to the 50% rule where the context is entertainment. There is no special prohibition on claiming alcohol as a business expense, but the expense must be genuine business-related entertainment with no excessive personal element.
IRD looks unfavourably at large alcohol claims that appear disproportionate to the business purpose.
GST on Entertainment Expenses
For GST-registered businesses, the GST input credit mirrors the income tax deductibility:
- 50% deductible entertainment → claim 50% of the GST as an input credit
- 100% deductible entertainment → claim 100% of the GST
Many accounting software packages (Xero, MYOB) have a specific “entertainment (50%)” tax code to handle this automatically.
FBT and Staff Entertainment
When you provide entertainment to employees, Fringe Benefit Tax (FBT) considerations arise:
- Staff entertainment (Christmas party, social function) is generally subject to FBT if it exceeds a minor and infrequent threshold
- Exemption: Entertainment costing under $300 per quarter per employee is an exempt minor benefit
- Staff entertainment over this threshold — employer may owe FBT at 49.25%
Alternative: Many employers simply treat staff entertainment as 50% deductible under the entertainment rules (rather than FBT) — which IRD generally accepts for genuine social events. Choose the most favourable treatment and apply it consistently.
Record Keeping for Entertainment
IRD requires you to keep records that establish:
- Date and place of the entertainment
- Amount spent (with GST shown if applicable)
- Business purpose — what business was discussed
- Attendees — who was present
A note in a calendar, an annotated receipt, or an expense management app entry all work. Simply keeping a receipt without context is not sufficient for an IRD audit.
Practical Examples
| Situation | Deductibility |
|---|---|
| Lunch with a client to discuss a project — $80 | 50% → $40 claim |
| Coffee and biscuits in your office for a client meeting — $15 | 100% → $15 claim |
| Staff Christmas dinner at a restaurant — $1,200 for 6 staff | 50% → $600 claim (also check FBT) |
| Dinner while staying overnight in Wellington for a work conference — $45 | 100% → $45 claim |
| Rugby tickets for a client — $300 | 50% → $150 claim |
| Drinks at the pub after a networking event — $60 | 50% → $30 claim |
Frequently Asked Questions
Can I claim 100% if the meal was entirely for business purposes?
No — IRD’s 50% rule applies regardless of how business-focused the meal was. The only exceptions are the specific 100% categories above (overnight travel, light refreshments on premises, etc.).
Does the 50% rule apply to GST as well?
Yes — claim only 50% of the input GST on 50%-deductible entertainment. Xero’s “entertainment” tax code handles this automatically.
I took a client to a corporate box. Is that 50% deductible?
Yes — corporate boxes are specifically listed as entertainment subject to the 50% rule under s. DD 2 of the Income Tax Act 2007.
What if I take only overseas clients to dinner — they don’t live in NZ?
Entertainment with non-resident overseas visitors is still subject to the 50% rule. There is no exception for overseas clients.