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Income Tax Treatment of Gift Cards and Products Provided as Trade Rebates or Promotions

In the recent publication, Inland Revenue clarified the income tax treatment of gift cards and products provided by trade suppliers to trade customers (business-to-business) as part of trade rebates, promotions, or rewards.

1. Gift Cards Provided to Trade Customers

Income Recognition:

  • The face value of gift cards is treated as income for the trade customer.

Employee Benefits:

  • When passed on to non-shareholder employees, open-loop cards are treated as employment income (subject to PAYE withholding), while closed-loop cards are treated as unclassified fringe benefits (subject to FBT). 

  • For shareholder-employees, the treatment depends on whether the individual has elected to treat employment payments outside the PAYE system; otherwise, PAYE applies.

Deductions:

  • A deduction is allowed for cards provided to employees or shareholder-employees (in their capacity as employees). 

  • No deduction is permitted for cards provided to shareholders or associated persons, as these are treated as dividends.

  • Cards used by trade customers to acquire goods or services for their business are deductible.

2. Products Provided to Trade Customers

Income Recognition:

  • Products received are taxable income at their realisable (second-hand) value.

Employee Benefits:

  • Products given to non-shareholder employees are treated as unclassified fringe benefits (subject to FBT).

  • For shareholder-employees, products are also treated as fringe benefits unless treated as dividends.

Deductions:

  • Trade customers may claim a deduction equal to the realisable value if provided to employees or shareholder-employees.

  • No deduction is allowed for products provided to shareholders unless sold, in which case the proceeds are taxable income.

3. Shareholders – Cards and Products

Gift cards or products given directly to shareholders, or associated persons, are treated as dividend income for the recipients.

4. Trade Suppliers – Gift Cards and Products

Trade suppliers providing these incentives are entitled to a deduction for the expenditure incurred on gift cards or products.

New Zealand Tax Accountant.