Tax treatment of gift cards – IRD’s interpretation (April 2025)

Gift cards are widely used by businesses in New Zealand as incentives, loyalty rewards, or employee gifts. However, Inland Revenue has clarified that these benefits are not always tax-free.

In April 2025, Inland Revenue released guidance explaining the income tax treatment of gift cards and products provided as trade rebates or promotions. This clarification aims to ensure businesses correctly report these benefits and understand their tax obligations.

For businesses that receive or distribute gift cards, understanding how these are taxed is essential to avoid compliance issues.

Why IRD Issued the Guidance

Inland Revenue noted an increasing practice where suppliers provide gift cards or products instead of traditional price discounts to reward trade customers. In some cases, these incentives were being treated as “tax-free”, which is incorrect.

The updated interpretation clarifies that:

• Gift cards received as trade incentives are generally taxable income

• The tax treatment depends on who receives the benefit and how it is used

• Businesses must ensure they apply the correct PAYE, FBT, or income tax rules

This guidance helps create consistency and prevent businesses from unintentionally under-reporting income.

When a Business Receives Gift Cards from Suppliers

When a supplier provides a gift card to a business as part of a rebate or promotion, Inland Revenue considers this income to the business.

For example, a supplier might offer:

• A $500 gift card for purchasing a certain volume of products

• A reward card under a supplier loyalty programme

• A promotional incentive tied to purchasing targets

In these cases, the face value of the gift card must generally be included as income in the business’s tax return.

If the reward is a physical product rather than a gift card, the taxable amount is typically the second-hand market value of that product.

What Happens If Gift Cards Are Passed to Employees

Businesses often pass supplier gift cards to employees as rewards or bonuses. The tax treatment then depends on the type of gift card.

Open-Loop Gift Cards

Open-loop gift cards are cards that can be used widely, similar to cash. Examples include prepaid cards linked to Visa or Mastercard like a Prezzy card.

Inland Revenue views these cards as equivalent to cash, meaning they are usually treated as employment income and subject to PAYE. Note: there is proposed legislation to allow employers the option of treating this as subject to FBT instead of PAYE.

Closed-Loop Gift Cards

Closed-loop cards can only be used at specific retailers or locations, such as store-specific gift cards.

These are typically treated as fringe benefits, meaning Fringe Benefit Tax (FBT) may apply when they are provided to employees.

What If Gift Cards Are Given to Shareholders?

If a business owner or shareholder receives a gift card from a supplier in their capacity as a shareholder rather than an employee, the value may be treated as a dividend.

In this situation:

• The company may not receive a tax deduction

• Dividend tax rules may apply

This makes it important to clearly identify who is receiving the benefit and why.

Record-Keeping and Compliance

Businesses that receive gift cards or promotional rewards should maintain proper records. Inland Revenue recommends documenting:

• The supplier providing the reward

• The value of the gift card or product

• The date it was received

• Who ultimately received or used the reward

• How the tax treatment was applied

Maintaining a simple register of supplier incentives can help businesses stay compliant and avoid issues if Inland Revenue reviews their records.

Key Takeaways for Businesses

The April 2025 IRD guidance makes several important points clear:

• Gift cards received as supplier rebates are generally taxable income

• Passing those rewards to employees can trigger PAYE or FBT

• The type of gift card (open-loop vs closed-loop) affects how it is taxed

• Proper record-keeping is essential

Many businesses have historically assumed these rewards were minor perks or tax-free incentives. Inland Revenue’s clarification confirms that they must be treated like any other form of income or employee benefit.

Need help with tax compliance or understanding how incentives affect your business tax position?

Affinity Accounting can help you navigate Inland Revenue requirements and ensure your business stays compliant while optimising your tax position.

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