Calculating the deduction

Working out the Deduction
In most cases, the value (for tax purposes) of the entertainment expense is simply the cost of providing the entertainment.

Some examples are:

  • the costs in providing a corporate box at a sports event
  • buying drinks for staff at a monthly get-together
  • the cost of food and beverages at a business lunch.

Sometimes the value of the expenses is not so clear cut, or you may have to take other factors into account. The following "Other Expenses" are some more examples you might come across.

Other Expenses
The value of business entertainment at an entertainment venue includes depreciation and other general costs in maintaining and running a corporate box, holiday home or yacht.

Incidental expenses
Entertainment expenses also include incidental expenditure or loss. This may be the cost of employing waiting staff, hiring crockery, glassware or utensils, music expenses or other costs associated with the entertainment.

This means that 50% of these costs will also be deductible.
If you’re registered for GST, calculate the entertainment value on the
GST-exclusive cost.

Monetary sponsorship
The value of entertainment in a sponsorship is the cost or value of any benefits received in return. For example: A company sponsors a local netball team and in return receives two tickets to their corporate box. Half (50%) of the value of the tickets would be deducted from the total value of the sponsorship.

If you pay an employee a tax-free allowance to cover expenses that are 50% deductible, only 50% of the allowance is deductible. For allowances that cover both entertainment and other expenses, you will need to make an apportionment between the two types of expenses.

This must be based on expenses you reasonably expect the employee to incur. You must keep records to show how you made the apportionment.