How to properly categorize and account for GST on entertainment expenses that are partly deductib

I need some help on how to properly categorize and account for GST on entertainment expenses that are partly deductible and partly non-deductible.

Here's the problem I'm encountering: For instance, let's take a business meal at a restaurant that costs $163.50, including GST of $21.33. The amount excluding GST is $142.17. According to the rules, 50% of this expense is deductible, which amounts to $71.085, and the GST on this deductible part is $10.66. The remaining 50% is non-deductible, totaling $81.755. However, my receipts only show a GST of $10.66, which corresponds to the deductible part. How should I enter the GST amounts for both the deductible and non-deductible portions in my accounting records, ensuring that I correctly account for the GST paid but only claim the deductible portion?

Please let me know if you need more clarification or if my explanation is confusing.

Accepted answers

Kris_Williams

sorry 2nd line should be 23.12

Acctd4

@IPNZLTD03 Create an additional expense account for Entertainment (Non-Ded) & split the purchase across the 2 lines.

(Note: The non-deductible line should have NO tax code!)

All comments

Kris_Williams

you can only claim what’s on the bill and I don’t know why the GST is only 10.66 but I believe you you can only claim half of that, this is how I would enter it

Entertainment. 53.30 NCG. 5.33

Entertainment 22.12. NCF

Drawings. 81.75

IPNZLTD03

@Kris_Williams

Hi Kris,

Thanks for your prompt reply. The total you got is $162.50, and the restaurant bill comes to $163.50. I wouldn't include the Owner Drawings, as it was a business meal and nothing was solely for enjoyment.

I would probably just split it into Ent. Deductible and Ent. Non-Deductible.

Let's see if anyone else has some more opinions.

Much appreciated your support.

GerryWinter

It really is confusing and you might want to show a copy of the bill itself

Kris_Williams

sorry 2nd line should be 23.12

Acctd4

@IPNZLTD03 Create an additional expense account for Entertainment (Non-Ded) & split the purchase across the 2 lines.

(Note: The non-deductible line should have NO tax code!)

Lizwebster

Agree, I spilt it into entertainment and entertainment 50%

As some entertainment is 100% non-deductible (NZ IRD rules) and some 50% and some non-deductible. I just spilt into 2 - entertainment and entertainment 50%. The deductible has no GST, the deductible has 15% GST taken (rare to have this in our business, so if I had it I might have another account for it) and 50% portion with gst taken on it sits in its own account.

At end of year, for tax accounting, the entertainment account is reviewed and the non-deductible amounts for tax are excluded (shown as non-deductibles) in the tax portion of the accounts.

None of this infers that the amount is not a business expense, just that IRD says its non-deductible, for tax purposes. I wouldn't post it to the owner's account. It's no different to having an internal depreciation rate for an item that is higher or lower than the IRD rate, which just gets adjusted for tax.

Lizwebster

This may be a little late in the piece.

I have 2 accounts entertainment and entertainment 50%. there are instances where entertainment can be 100% deductible, non-deductible and 50% deductible.

In the case where the entertainment is deemed (by IRD rules) to be only 50% deductible for tax, I split the transaction between the 2 accounts.

Entertainment $81.75

Entertainment 50% 71.09, 10.66

That gets GST finalised for the return period.

When end-of-year accounts are being done for tax, the transactional amounts with no GST are added up and become an adjustment in the accounts for tax as non-deductible. In your y/e tax accounts, there should be an amount that shows as non-deductible in the tax calc.

You are right, the expenses are business, they are just not in some instances deductible for tax purposes. So your accounts and tax accounts are usually not the same.

Hope this helps

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