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Are gifts to your employees, clients, and suppliers claimable as a business expense? Gifts may be classified as “entertainment” and therefore not claimable or subject to Fringe Benefits Tax (FBT).
For gifts such as wine, food, hampers, vouchers, etc., these are not considered to be entertainment.
If the gift is a minor benefit (i.e., less than $300 value), then the gift is not tax deductible, and therefore GST is not claimable for gifts to employees and their family members, clients, and suppliers. No FBT applies to gifts of less than $300.
For gifts over $300, FBT may apply for employees and their family members, but FBT does not apply to clients or suppliers.
Gifts such as a holiday, membership to a club, or tickets to a theatre, sporting or musical event are considered to be entertainment.
For minor benefits, as above, the gift is not tax deductible and no FBT applies. Also, for clients and suppliers, the entertainment gift is not tax deductible, and no FBT applies. For employees this is not a minor benefit, the gift is tax deductible, but it is also subject to FBT.
Giving your clients a gift at Christmas is a personal choice that you as the business owner can make. Be aware that some clients may not be allowed to accept gifts due to their business’s Code of Conduct (e.g., government workers).
We remind you that the topic of entertainment, tax deductibility and fringe benefits tax is complex and not always straight forward and may require the guidance of your tax agent.
Is an expense incurred by a business taxpayer for a gift provided to a former or current client deductible?
- Yes, a taxpayer who carries on a business is entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for an outgoing incurred on a gift made to a former or current client if the gift is characterised as being made for the purpose of producing future assessable income.
- The outgoing is not deductible where it is of a capital nature, relates to the gaining of exempt or non-assessable non-exempt income, or some other provision of the income tax law prevents it from being deductible.