Gifts to clients – are they deductable for tax?

Giving gifts to clients at Christmas time is always popular and may help win new clients and generate more income for your business. In order to claim gift expenses during tax time, the gifts would need to have been offered with the intention of generating future assessable income.

 

Deductibility:

Example 1: Kylie is carrying on a renovation business. Kylie gifts a bottle of champagne to a client who had a renovation completed in the past 12 months.

  • Kylie expects the gift will either generate future business from the client or make them more inclined to refer others to her business. Although Kylie got on well with her client, the gift was not made for personal reasons and is not of a private or domestic nature.

  • The expense Kylie incurred for the champagne is not of a capital nature (an expense incurred for a long-term depreciating asset or an expense associated with establishing, replacing, enlarging or improving your business).

  • In this case, Kylie would be entitled to a deduction.

Example 2:  Josh is carrying on a business of selling garden statues. Josh sells a statue to his brother for $200. Subsequently, Josh gifts a bottle of champagne to his brother worth $170 although he had usually given gifts only to clients that spent over $2,500 over the last year.

  • In this case, Josh’s gift would have been made for personal reasons and would have been of a private or domestic character.

  • Josh would therefore not be entitled to a deduction.

If you need help to ensure that the festive season spending doesn’t create problems at tax time?   Give us a call.

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