Gift card tax warning to tradesmen

Photograph: Andrey Popov / 123RF

Shoppers are warned that they will likely have to pay tax if they are given a gift card as part of a rebate or rebate.

Inland Revenue said it was common for commercial suppliers to offer discounts in the form of rebates to business customers.

He was aware that it was becoming increasingly common for this to take the form of product or gift card discounts, and that these were sometimes passed on to employees.

He said he was aware that in some cases they were viewed or promoted as tax-free, but that this was incorrect.

Inland Revenue gave examples, including that of a farm business purchasing agricultural supplies.

If the supplier gave customers a discount in the form of a $100 gift card for every $1,000 in purchases, that should count as business revenue for the purchasing farm business, he said.

However, if the business did not report it for tax purposes, it could face a deficiency penalty.

In another example, if a builder purchasing supplies received a gift card and transferred it to a non-shareholder employee, that would also have tax liabilities.

If it fails to account for the value of the card as business income and fails to pay fringe benefit tax (FBT), it may be liable to pay penalties for both the FBT shortfall and the neglected business income.

Robyn Walker, tax partner at Deloitte, said many people ignore this liability or treat these amounts as a gift that can be ignored for tax purposes.

“Given the increasing prevalence of suppliers looking to offer loyalty programmes, it is timely that Inland Revenue issues some guidance to ensure a level playing field.

“I am aware that some suppliers are offering more generous benefits to business customers and in some cases advising that amounts received are tax-free. The new statement from Inland Revenue makes clear this is not the case.”

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