Giving gifts to clients at the end of the year is always popular and may help you retain high value clients and generate more income for your business.
Under Australian Tax Office (ATO) rules, gifts given to a current or former client may be deductible at tax time if they are offered with the intention of generating future assessable income.
However, it is important to seek advice from your accountant or qualified tax professional before deciding to purchase client gifts this festive season as not all gifts are tax deductible. This includes gifts considered to be entertainment (such as tickets to sporting events or the theatre) and gifts of a personal nature.
As an example, Sally has a renovation business and decides to give a bottle of champagne to a client who had a renovation completed in the previous 12 months. She expects the gift will either generate future business from the client or encourage them to refer others to her business. Although Sally got on well with her client, the gift was not made for personal reasons.
The expense Sally incurred for the champagne is not of a capital nature (that is, expenditure on a long-term asset), so she can claim a deduction.
Although there is no fringe benefits tax (FBT) on benefits provided to clients, if you provide gifts to your employees you may have an FBT obligation. This depends on the value and type of gifts you provide. See the fringe benefits tax information on the ATO website for more information.
As an example, Bernard’s business sells garden statues. He sells one to his brother for $200. Subsequently, he gives a bottle of champagne worth $170 to his brother, even though he generally only provides gifts to clients who spent more than $2,500 during the past year. The gift was therefore given for personal reasons, so Bernard is not entitled to claim a deduction.
Visit our tax deductions and concessions page for more information on eligible tax deductions and concessions for small business owners or read the ATO's tax determination on client gifts.
Speak to your accountant or qualified tax professional before committing to purchasing gifts for clients to determine what can be claimed as a tax deduction.
