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.
Entertainment expenses that are not completely business related, such as food and drink at social events, are 50% deductible in NZ. Entertainment that is completely business related can be 100% deductible, for example food and drink at a conference or course lasting at least 4 hours, or entertainment enjoyed outside New Zealand. If you are self-employed, the cost of your own meals is usually private, including when you travel, but you can claim 50% of entertainment such as a business lunch with clients. Keep a record of the date, business purpose, and who attended.
The 50% Entertainment Rule
IRD says entertainment expenses are 50% deductible, and not liable for FBT, if they are not completely business related. This includes entertainment that is away from work or out of usual working hours, so it has a “significant private element”. The expense is 50% deductible even if you think the private element was more or less than 50%. Entertainment that is completely business related can be 100% deductible (see below).
IRD’s examples of 50% deductible entertainment include:
- Entertainment at sports or cultural events (for example, a corporate box)
- Business use of a holiday home
- Hiring a boat and providing food and drink to people on it
- Food and drink you provide for social events (such as parties)
- Gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them
- A business lunch with clients when you are self-employed
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 an employee buys while travelling on business | 100%, unless the meal is with an existing or potential business contact or is a celebration, reception or similar event (then 50%). Self-employed people’s own meals are usually private, so this does not extend to a sole trader’s own meals |
| Food and drink provided at a conference, education course or similar event that lasts at least 4 hours | 100%, unless the conference is mainly for entertainment (then 50%) |
| Entertainment that promotes your business | 100% if the public has the same access as your employees and business contacts; 50% if the public has less access |
| Entertainment provided to someone who will review it for publication | For example, a free meal for a food critic |
| Entertainment enjoyed outside New Zealand | 100% |
A lunch with clients at a restaurant is a 50% item. If you are self-employed, IRD says you can claim 50% of the total cost of a business lunch with clients.
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 |
| Staff Christmas dinner at a restaurant — $1,200 for 6 staff | 50% → $600 claim (also check FBT) |
| Your own dinner while staying overnight in Wellington for work, when you are self-employed ($45) | Usually private; only extra cost from remote or unusual-hours work may be claimed |
| Rugby tickets for a client — $300 | 50% → $150 claim |
Frequently Asked Questions
Can I claim 100% if the meal was entirely for business purposes?
It depends. IRD says entertainment is 50% deductible if it is not completely business related, and 100% deductible if it is completely business related. IRD lists specific 100% situations (see above). For a self-employed person, a business lunch with clients is a 50% item.
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. IRD lists entertainment at sports or cultural events, for example a corporate box, as 50% deductible.
What if I take only overseas clients to dinner — they don’t live in NZ?
IRD says entertainment enjoyed outside New Zealand is 100% deductible if it is completely business related. Entertaining overseas clients in New Zealand is not covered by that exception, so the usual 50% or 100% tests apply.