Giving gifts to clients at the end of the year is always popular and may help you retain high value clients and generate more income for your business.

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

However, it is important to seek advice from your accountant or qualified tax professional before deciding to purchase client gifts this festive season as not all gifts are tax deductible. This includes sporting or theatre tickets, and gifts of a personal nature.

Gift giving that is tax deductible

As an example, Sally has a renovation business and decides to give a bottle of champagne to a client who had a renovation completed in the previous 12 months. She expects the gift will either generate future business from the client or encourage them to refer others to her business. Although Sally got on well with her client, the gift was not made for personal reasons.

The expense Sally incurred for the champagne is not of a capital nature (that is, expenditure on a long-term asset), so she can claim a deduction.

Gift giving that is not tax deductible

As an example, Bernard’s business sells garden statues. He sells one to his brother for $200. Subsequently, he gives a bottle of champagne worth $170 to his brother, even though he generally only provides gifts to clients who spent more than $2,500 during the past year. The gift was therefore given for personal reasons, so Bernard is not entitled to claim a deduction.

More information

Visit our tax deductions and concessions page for more information on eligible tax deductions and concessions for small business owners or read the ATO's tax determination on client gifts

Speak to your accountant or qualified tax professional before committing to purchasing gifts for clients to determine what can be claimed as a tax deduction.

Legal and risk
15 November 2021