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Giving gifts to clients at the end of the year is a great way to thank your clients for their business.

The question we frequently get asked is, are client gifts tax deductible?

The short answer is, YES!

Under the ATO rules, gifts given to a current or former client may be tax deductible if they are offered with the intention of generating future assessable income. It is important that you keep proof of purchase and evidence of the logic as to why you believe this purchase could lead to the generation of repeat business, client referrals, and improve your business reputation.

Please note that not all gifts are tax deductible and it’s best to check with your accountant or a qualified tax professional before deciding on a gift.

Gifts that are of a personal nature are not tax deductible.

As an example, Bernard has a business selling garden statues. Bernard sells a statue to his brother for $200. Subsequently, Bernard gifts a bottle of champagne to his brother worth $170 even though he generally provides gifts only to clients that spend over $2,500 in a year. Since this gift has been made for personal reasons, Bernard is not entitled to a deduction.

What other client gifts are not tax deductible?

If the gift is classed as entertainment, then this expense is not tax deductible. Entertainment normally relates to the immediate consumption of the item of property. Examples of items of property that would generally constitute entertainment include:

• Hot meals
• Glasses of champagne
• Sporting or theatre tickets
• Holiday accommodation
• Cruises
• Hired entertainers
• Hired sporting equipment

On the flip side, the following types of gifts are tax deductible:

• Bottles of wine, cartons of beer
• Gift vouchers to retailers such as MYER, David Jones, Westfield
• Fruit hampers
• Flowers

Is Fringe Benefits Tax (FBT) payable on gifts?

Gifts to clients, suppliers, and contractors are not subject to FBT however if you provide gifts to employees, you have an FBT obligation. This depends on the value and types of gifts you provide. For more information, click here.

What are the GST rules on gift vouchers?

⁠There are special GST rules for vouchers in Division 100 of the GST law.

The term ‘voucher’ is defined for GST purposes as:

“any … voucher, token, stamp, coupon or similar article … the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms …”.

Essentially, a voucher is not subject to GST when sold where the following conditions exist:

• The voucher has a monetary value stated on it
• The amount paid for the voucher does not exceed the monetary value stated on it; and
• When the voucher is redeemed, the holder is entitled to supplies up to the stated monetary value of the voucher.

The ATO refers to these types of vouchers as ‘face value vouchers’.

Based on the above, a gift card will generally be a voucher.

In simple terms, when a person goes into a store and buys a face-value voucher, that sale will not be subject to GST.

Therefore, where a business buys vouchers/gift cards which are face value vouchers with the intention of providing them to staff or clients, such vouchers are not subject to GST, and the business is not entitled to claim any GST credits for the acquisition.

More information

If you are unclear whether your gift is tax deductible, or subject to FBT or GST, feel free to get in touch.