If you’ve worked for a business or run your own business, you’ve probably given or received a gift as an appreciation for the business relationship.
Late last year, the Inland Revenue Department (IRD) confirmed they consider the receipt of all such rewards by a business to be taxable income. This treatment applies to companies, sole traders, partnerships and look-through companies.
If you receive a spending reward (e.g. “spend $X and receive a gift”), the gift becomes taxable income based on how much the gift could be sold for. If the gift is used in a business, it becomes a business asset. IRD does not currently allow such assets to be depreciated, but this may change.
Some suppliers offer a points-based system instead of gifts (e.g. earn a certain number of points and then redeem them for a gift), but the IRD has not yet clarified how to treat these points. The IRD will most likely deem them taxable income once the points are redeemed for a gift.
We await confirmation from IRD on this, but in the meantime, if you are receiving points/gifts with a significant value, then consider discussing the treatment of these with your Client Manager.
Remember to consider the GST implications of gifts and rewards. These are GST inclusive, so GST will need to be accounted for on the face value of the gift.
As far as businesses giving out these rewards, the cost of such rewards is usually tax deductible. Where gifts/rewards are given to clients, the business can claim a tax deduction for the cost price of the gift.
If you give a gift to an employee, there are different treatments depending on the gift.
If you give a gift card that can be used almost anywhere (known as an “open loop” card), this is treated like giving cash and should be treated the same as a bonus paid through their wages/salary. As such, you need to gross up the “bonus” to include PAYE and then include the gross amount and PAYE deducted in your next PAYE return.
If the card can only be used at specific places (a “closed loop” card) then it is treated like other staff gifts and subject to Fringe Benefit Tax (FBT). Gifts under $300 per employee per quarter require no declaration. Above this threshold, any gifts must be recorded and FBT accounted for by the business.
If you receive a spending reward from a client or supplier and then pass this on to an employee, it is an unclassified fringe benefit and is subject to the same rules as closed-loop cards.
As you can see, there is plenty of room for confusion in these rules, so please contact your Client Manager if you have questions.
