You might receive gift cards as a loyalty rewards or give gift cards to your employees from time to time, particularly as Christmas gifts or rewards for great performance.
The treatment of these has recently been clarified by the IRD. So how do you treat them in your accounts as a business owner and employer?
Firstly, the distinction is made between two types of gift card:
‘Open loop’ cards (eg. prezzy card, can be used anywhere) are considered ‘cash’
‘Closed loop’ cards (eg. New World gift-card) are not considered “cash”
1.Gift cards used to pay for business expenses
Where the business receives either type of gift cards from supplier, they are income to the business receiving the card to the face value of the card. The receiving business receives a deduction for tax to the value of the gift card used on business-related expenses.
2. Gift cards provided to shareholder-employees as shareholders
Open loop cards are treated as a dividend if given to shareholders, and the company is not allowed a deduction for gift cards provided to shareholders or to persons associated with shareholders.
Closed loop cards are treated as a fringe benefit if it is not elected to treat them as dividends as above.
3. Gift cards given to employees/shareholder-employees as employees
Open loop cards are treated as employment income and the value is required to be grossed up and returned for PAYE.
Closed loop cards, if given to employees, are subject to FBT as they are fringe benefits. The Other/unclassified Benefit threshold does apply however.
The amount of the card in both situations is income to the employer for both income tax and GST.
However, when unclassified benefits are exempt from FBT…
The unclassified benefits you provide to employees will be exempt from FBT if they are under the minimum value threshold or are for certain types of transport.
Minimum value thresholds
The thresholds for quarterly filers are:
$300 or less for each employee in a quarter, and
the total unclassified benefits provided to all employees in the last 4 quarters (including the current quarter) are $22,500 or less.
The thresholds for annual and income year filers are:
$1,200 or less for each employee for the year, and
the total unclassified benefits provided to all employees in the last income year must not exceed $22,500.
