Tradespeople are being warned that if they are given gift cards as part of a rebate or discount, they probably need to pay tax on them.
Inland Revenue said it was common for trade suppliers to offer rebates to trade customers in the form of discounts.
It was aware that it was increasingly common for this to happen in the form of product or gift card rebates, and sometimes they were passed on to employees.
It said it was aware that in some instances these were being viewed or promoted as tax-free, but this was incorrect.
Inland Revenue gave examples, including that of a farm business buying farming supplies.
If the supplier gave customers a rebate in the form of a gift card of $100 for every $1000 of purchases, this should be counted as business income for the purchasing farm business, it said.
But if the business did not report it for tax purposes it could be liable for a shortfall penalty. In another example, if a builder buying materials received a gift card and passed it on to a non-shareholder employee, it would also have tax obligations.
If it did not account for the value of the card as business income and did not pay fringe benefit tax (FBT), it could be liable for a penalty for both the FBT shortfall and the omitted business income.
Deloitte tax partner Robyn Walker said it was likely that many people had been overlooking this obligation or treating the amounts as a gift that could be ignored for tax purposes.
“Given the increased prevalence of suppliers looking to offer loyalty schemes it is timely that Inland Revenue has put out some guidance to ensure there is a level playing field.
“I am aware that some suppliers have been offering more generous benefits to trade customers and in some instances advising that amounts received were tax-free. The new statement from Inland Revenue makes it clear that this isn’t the case.”
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