Income Tax Treatment - Trade rebates and promotions

IRD have recently come out with a new statement clarifying the tax treatment of gift cards and promotional products received by trade customers.

Are Trade rebates and promotions income?

Often trade suppliers reward trade customers with gift cards or free products. The IRD consider these to be income to the customer if the rebates came about due to their spending on products for their business.

The value of the income will be the face value of the gift card, or for promotional products the secondhand market value.

There are also income tax implications if the gift cards are then provided to employees or shareholders (see below). The IRD consider the gift card to be income at the time it is received, regardless of whether if it actually used or not.

Type of gift cards

The IRD have identified two types of gift cards. Open loop or closed loop.

Open loop cards are those that can be used at a wide variety of retailers such as a Prezzy card.

Closed loop cards are those that can only be used at a specific supplier, such as a Mitre 10 gift card.

Giving gift cards or products to employees

If an open loop card is provided to an employee then IRD consider this to be ordinary PAYE income and the value of the gift card should be included in the employees’ wages.

If a closed loop card or physical goods are provided to an employee then it will be subject to FBT.

When a gift card is provided to an employee the business is entitled to a deduction.

Giving gift cards or products to shareholder

If a gift card or product is provided to a shareholder who is not also an employee, then this will be treated as a dividend and taxable to the shareholder. There will be no deduction to the business which means you will pay tax twice on the value of the gift card.

Need more information?

These rules can be quite complicated depending on the type of benefit received.

If you have any questions, please contact your usual CT advisor.

Cheers
Mat

Mathew Robertson, Managing Director

_

This article contains general information only and based on information available at the date of publication. You should obtain advice for your personal circumstances. Full IRD article available here - QB 25/07: INC - Trade rebates and promotions