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Lay Dodd News Christmas 2025

16 December 2025

DECEMBER 2025

      Our office will close at 12.00 pm on Tuesday, 23 December 2025 and will reopen Wednesday, 14 January 2026. 

Thank you for your continued support and we look forward to working with you again next year.

Have Santa’s elves been busy bringing joy to your workplace?

While the work Christmas party and gift-giving bring joy, they can also bring confusion when it comes to understanding the tax implications for both employers and employees.  Behind the sparkle of parties and presents lie three key tax regimes:  FBT, PAYE, and entertainment expenditure, with each regime bringing its own festive twist, subtle enough to keep even the elves guessing.  Whether you’re hosting a Christmas party, giving gifts to staff, or entertaining clients, chances are one of these regimes will apply, but which one isn’t always clear.

Christmas Party Off-Site

Planning a festive event away from the office?  Costs for food, drinks, and venue hire fall under entertainment expenditure rules.  Incidental expenses – such as crockery, glassware, utensils, waitstaff, or music – are also included.

Tax impact:  Only 50% of these costs are deductible

Staff Cash Bonuses

Cash bonuses paid to employees are taxable under PAYE rules.  These payments relate to employment but are not part of regular salary or wages.

Tax impact:  Bonuses should be taxed at the “extra pay” rate.

Christmas Gifts for Employees

Most gifts to employees are subject to FBT.

Some benefits may qualify for an FBT exemption under the ‘de minimis rule’ if:

  • Total unclassified benefits for all employees are under $22,500 in the past 12 month.
  • No employee receives more than $300 per quarter ($1,200 annually).

Common examples:  vouchers, gifts, flowers.

Gifts for Clients and Customers

Here’s an interesting twist:  Inland Revenue treats any food and drink as entertainment expenditure, even when given as a gift.

Example:  A gift basket with wine, cheese, towels, and soap.

Tax impact:  Towels and soap are fully deductible, but wine and cheese are only 50% deductible.

Inland Revenue Audit Activity:  2025 year in review

Inland Revenue has significantly increased its audit and compliance activities throughout 2025.  This escalation is driven by substantial new government funding and a clear mandate to protect the integrity of the tax system and address New Zealand's growing tax debt.

Inland Revenue's investment in compliance is yielding significant returns for the Crown.  Recently released figures for the 2025 year show a return of $11.81 for every dollar spent, exceeding the $10.00 target.

This demonstrates a clear and effective strategy to increase revenue collection through targeted compliance work.

Key Audit Focus Areas

Inland Revenue is utilising enhanced data analytics and third-party information to target areas it perceives as high risk.  This intelligence led approach allows for more focused interventions.  The primary target areas for this increased audit activity include: 

  • Property Compliance:  Scrutiny of residential property sales to ensure correctly declared for both income tax and GST purposes.
  • High-Wealth Individuals and Trusts:  Reviewing complex structures to ensure they are not being used for tax avoidance or to artificially reduce tax liabilities.
  • Corporate Restructuring:  Examining corporate entity restructuring intended to achieve a tax advantage.
  • Emerging Online Risks:  A focus on new digital economies, including:
    • Cryptocurrency asset transactions
    • Income derived by digital content creators
  • Hidden Economy and Income Suppression:  Targeting businesses that may be operating outside the tax system or deliberately suppressing sales data.  This includes a specific focus on the use of Electronic Sales Suppression Tools. 
  • Unfiled Returns and Overdue Debt:  A concerted effort to pursue overdue returns and collect outstanding tax debt.

Provisional Tax Instalment 2 for 2026 is due for payment on Thursday, 15 January 2026. The tax notices have been sent by email to applicable clients during December.  If there is any difficulty meeting payments, please get in contact with us as soon as possible.

A gentle reminder that if we have not received your financial information to prepare the income tax return and financial statements for the year ended 31 March 2025, please could you provide us with the information in the New Year to ensure we can complete your tax affairs in a timely manner.  If you have any questions about what is required or would like to discuss your tax affairs, please do not hesitate to contact us.

From the Team at Lay Dodd, Merry Christmas and a Happy New Year! Enjoy your break.

Disclaimer

This publication has been carefully prepared, but it is written in general terms only.  The publication should not be relied upon to provide specific information without also obtaining appropriate professional advice after detailed examination of your particular situation.


Lay Dodd News Christmas 2025