Client gifts are becoming a common part of business practice these days and can help you win new clients, increase referrals and generate new revenue.
Like other business expenses you want them to be tax deductible so they can be claimed at tax time. Most of these gifts are tax deductible provided they meet certain criteria. Tax Determination 2016/14 states that provided the gift is characterised as “being made for the purpose of producing future assessable income”, it is tax deductible. This however doesn’t mean that any gift given to a client is deductible as shown in the examples below.
Deductible
• Bottled Spirits
• Bottles or Cartons of Wine, Beer
• TV Sets
• DVD’s
• Computers
• Gift Vouchers to generic organisations (eg. Myer, David Jones, Westfield)
• Crockery
• Swimming pools
• Gardening equipment
• Perfume
• Pen sets
• Groceries
• Games
Not Deductible
• Glasses of Champagne
• Hot Meals
• Theatre Tickets
• Holiday Accommodation
• Cruises
• Hired Entertainers
• Hired Sporting Equipment
So why is there a difference between the deductible and not deductible expenses if they are all purchased as gifts for clients?
The answer to this is whether or not the client gift constitutes entertainment or not.
Entertainment is specifically excluded from being deductible in the Income Tax Assessment Act and is defined as entertainment by way of food, drink or recreation; or accommodation or travel to do with providing entertainment by way of food or drink or recreation.
In practice, the provision of entertainment can be determined by reference to the characteristics of timeliness and direct connection.
Essentially you need to ask your self one main question in relation to client gifts.
1. Is the benefit used up immediately after consumption or is it delayed and can be drawn out?
The more the benefit can be delayed, drawn out or used again the less likely it is to be considered entertainment.
Author: Adrian Wardlaw
Email: adrian@faj.com.au
