At this time of the year it is common to provide gifts to existing clients and customers as an act of goodwill and as a thank you for their custom and support of your business.
As the gift is an expense to your business it is generally considered to be a tax deduction.
The ATO has considered the act of gift making to clients, and several cases exist where the tax treatment has been tested in the courts. If there is an expectation that the gift will either generate future business from the client or motivate them to refer your services to others, it is considered that the expenditure of the gift was in the nature of business promotion.
In cases where the gift is provided to a client up to 12 months after the cessation of the services, there is a prospect that the expenditure may produce assessable income in the future. Consequently the ATO considers the gifting expenditure to be incurred in carrying on a business for the purpose of gaining or producing assessable income.
It should be noted that the gift does not constitute the provision of entertainment which is a non-taxable deduction.
Gifts which are not considered to be entertainment
These generally include, for example, a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.
Briefly, the general Fringe Benefits Tax and income tax consequences for these gifts are no FBT, and tax deductible.
Gifts which are considered to be entertainment
These generally include, for example, tickets to attend a theatre, live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre. These are also not subject to GST but are non-deductible.
If you would like any more information on this topic, please do not hesitate to contact us here at Fortis Accounting Partners.
You can reach us o 02 9267 0108 or via info@fortisap.com.au.
