Taking advantage of tax dedications on client gifts

Giving gifts to clients at the end of the year is always popular, and it can help you retain high-value clients while also generating more income for your business.

Gifts given to a current or former client may be deductible at tax time if they are given with the intention of generating future assessable income, according to Australian Tax Office (ATO) rules.

However, before purchasing client gifts this holiday season, consult with your accountant or a qualified tax professional because not all gifts are tax deductible. This includes sporting or theater tickets, as well as personal gifts


Gift giving that is tax deductible

Estelle, for example, owns a renovation company and decides to give a bottle of champagne to a client who had a renovation completed within the previous year. She anticipates that the gift will either generate additional business from the client or encourage them to refer others to her company. Despite the fact that Sally got along well with her client, the gift was not made for personal reasons.

Estelle's expense for the champagne was not capital in nature (i.e., it was not spent on a long-term asset), so she can deduct it.

Gift giving that is not tax deductible

Larry's company, for example, sells garden statues. He sells one for $200 to his brother. As a result, he gives his brother a bottle of champagne worth $170, despite the fact that he generally only gives gifts to clients who spent more than $2,500 in the previous year. As the gift was made for personal reasons, Larry is not eligible for a tax deduction.

At Instant Tax Refunds, we strive to provide high-quality service that constantly meets and sometimes exceeds our customers' expectations.

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